A recent article was published on Forbes.com highlighting how Real Estate Investment Trust investors plan for eventual rate liftoff. It gives valuable information that helps predict ways to gauge the market and how to assess any future investment in the REIT market.
Some interesting points to consider:
-REIT’s own the land, and improvements are leased to tenants in a variety of ways. Because this requires a leasing contract, profits are easier to calculate.
-REIT must pay out dividends from 90% of taxable income, so the dividends are predictable.
-In these situations, rent can be increased quicker than longer fixed rate lease agreements.
-It’s important to note that this falls under the business cycle, not the real estate cycle which is much longer, so the Federal Reserve doesn’t provoke real estate construction. Real estate business cycles are much longer due to the process of building (typically around 4 years from start to first rental income).
-The best time to purchase stocks is to buy at the right price; this requires vast research into the background effects and predictions of cycles based on past trends.
Anyone planning on venturing into this market of REIT or anyone currently in it should check out the article Predicting REIT Profits That Help You Sleep Well At Night (Forbes) to read more about economist Homer Hoyt’s research into the real estate business cycle. Don’t forget to check out Brad Thomas’ list of “sleep well at night” (SWAN) REITs (linked in the article).