The first of the month puts a smile on every real estate investor’s face. Checks start showing up in their mailbox based on a contract the tenant signed months ago. Real estate offers what you crave – yield. But I’ve always had two problems with real estate investing. First, expenses are high. Putting a roof on the building and cleaning up between tenants who destroy the walls takes money out of those rent checks. Beyond that, yields are continuing to drop. Investors have piled over $1 trillion into REITs by the end of 2015 seeking the predictable yield they promise. As more money comes in, yields start dropping. Yet, it’s better than the 10-year Treasury rates sitting at 0.1%. I’ve spent the better part of the last five years trying to find little known investments with solid yields. My criteria are simple.
- It must produce real, consistent cash flow – I’m not interested in waiting on capital appreciation. A bad earnings report can end up wiping out years worth of gains on an individual stock.
- It must be cheap to maintain – Running to Sears to buy a new refrigerator eats up the entire month’s rent. Instead, I want an asset that doesn’t require big capital expenditures for the basic maintenance.
- It can’t be in a bubble – When everyone else knows about it, it likely means that prices are getting too expensive. Billion dollar REITs are raised with steady frequency. They all chase after the same inventory which means lower and lower yields.
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