Here’s How to Get Rich and Retire Early by Investing in REITs

REITs could offer significant total returns over the long run due to their valuations and growth potential.

edit Real Estate Investment Trust REIT on double exsposure business background.

Image source: Getty Images

The global property sector has enjoyed strong growth since the financial crisis. A combination of low interest rates, a buoyant world economy and wide margins of safety in the aftermath of the financial crisis have produced impressive returns for many investors.

Looking ahead, there could be further growth on offer from the wider sector. One way of accessing it is through buying real estate investment trusts (REITs). They provide diversity, as well as growth potential over the long term.

As such, now could be the right time to invest in REITs. Through having a focus on diversity, value and exposure to fast-growing sectors, you could improve your chances of getting rich and retiring early.

Diverse exposure

While REITs can offer long-term growth potential, the property industry has historically moved in cycles. This means that, in the short run at least, there is always the potential for property prices to move lower and for investors to experience paper losses.

As such, it is prudent to own REITs that offer a degree of diversity. This could, for example, mean that they hold a wide variety of assets in different locations. Or, it could mean that a REIT holds different types of assets, such as retail, leisure and residential, in order to reduce their reliance on a specific sector.

Through buying REITs that offer greater diversity, an investor may also be able to access a wider pool of growth opportunities in what is a rapidly-changing world economy.

Growth focus

In the past, REITs that had exposure to retail assets were generally seen as offering stability and a robust income stream. Due to technological changes, though, REITs with retail exposure may become less popular over the coming years. The increasing popularity of online shopping means that demand for retail units in a wide range of markets could fall. This may mean that REITs which own a large volume of retail units are forced to pivot towards faster-growing areas, which could be a challenging process.

As such, investors may wish to focus their capital on growth areas. One such sector is logistics facilities, such as warehouses. They are becoming more in-demand as online shopping businesses enjoy a tailwind from increasing consumer demand. Positioning a portfolio so that it is concentrated in faster-growing sectors, such as warehousing, could lead to higher returns in the long run.

Low valuations

Although global property prices have made gains in the last decade, a number of REITs continue to offer good value for money. In some cases they may trade below net asset value, which could represent a low valuation that produces an impressive rate of capital growth over the long run.

Due to the cyclicality of the property industry, it may take time for undervalued REITs to narrow the gap between their market value and intrinsic value. However, by holding on to undervalued assets over the long run, an investor may increase their chances of getting rich and retiring early.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Young woman sat at laptop by a window
Dividend Stocks

3 Secrets of RRSP Millionaires

Are you looking to make millions in retirement? You'd better get started, and these secrets will certainly help get you…

Read more »

Choice of fashion clothes of different colors on wooden hangers
Investing

What’s Going on With Aritzia Stock?

With Aritzia continuing to trade below its historical valuations, is it one of the best growth stocks on the TSX…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

TFSA Passive Income: 2 Dividend-Growth Stocks Yielding 7%

These top dividend-growth stocks now offer high yields.

Read more »

top TSX stocks to buy
Dividend Stocks

Buy 78 Shares in This Glorious Dividend Stock And Create $1,754 in Passive Income

This dividend stock surged in its first quarter, and more could be on the way as it works its way…

Read more »

Man data analyze
Tech Stocks

If You Invested $1,000 in Constellation Software Stock 5 Years Ago, This Is How Much You’d Have Now

Are you interested in knowing how much an investment of $1,000 in Constellation Software stock would be worth now?

Read more »

four people hold happy emoji masks
Dividend Stocks

5 Top Canadian Dividend Stocks to Buy in May 2024

These Canadian stocks have stellar dividend payments and growth history. Moreover, they are poised to consistently enhance their shareholders’ returns…

Read more »

Dividend Stocks

1 Under-$10 Dividend Stock to Buy for Monthly Passive Income

Here's why NorthWest Healthcare Properties REIT (TSX:NWH.UN) is a REIT that may be worth buying on its recent dip for…

Read more »

pipe metal texture inside
Investing

Got $15,000? How to Invest for a Bulletproof Passive-Income Portfolio

Given their stable cash flows and healthy growth potential, these three dividend stocks could bulletproof your passive income.

Read more »