So, before getting into the three real estate investment trusts (REITs) that you need in your real estate portfolio, we should probably quickly cover a couple of underlying points.
Why a real estate portfolio? Because owning real estate is a great way to build long-term wealth. Period. (For more, check out this handy-dandy Millionacres explainer: "Building Your Real Estate Portfolio: a Step-By-Step Guide for New Investors.")
Why REITs? Because they're a great way to invest in real estate. They're required to pay at least 90% of their taxable income as dividends, and each has its own portfolio of curated properties. (Using "curated" like this has become as overused as "artisan," but in this case I think it works: actual experts selecting, collecting, and presenting something.)
So, I'm not the expert here. I'm just an investor, presenting below two REITS -- and a third that is its own selector and collector of REITs -- that I think are compelling candidates for inclusion in just about anybody's portfolio of real estate stocks.
American Campus Communities
Back to school has been party time for American Campus Communities (NYSE: ACC) despite the grim reality of the continuing COVID-19 pandemic. For the most part, campuses are back in person this fall, and demand has snapped back for housing, creating a tight market that has seen occupancies return to pre-pandemic normal for many places.
The Austin, Texas-based company lays claim to being the nation's largest provider of student housing, and if you've been around a major college campus for any amount of time in recent years, you may well have noticed what a growth industry meeting that demand has become.
American Campus Communities designs, finances, builds and operates student housing across the country. As of June 30, its total managed portfolio consisted of 205 properties with approximately 141,300 beds.
American Campus Communities stock closed at $50.11 on Oct. 10, just 3.8% off its 52-week high of $52.09 from Sept. 3. Even at that price, the stock was yielding a nice 3.75% based on an annual dividend yield of $1.88 per share.
Check out the "The great news goes beyond 2021" section from our Matt Frankel's rundown of this REIT's second-quarter performance to learn more about why it's doing so well, and why that performance could remain strong for some time to come.
Innovative Industrial Properties
Innovative Industrial Properties (NYSE: IIPR) bills itself as the "leading provider of real estate capital for the medical-use cannabis industry." And when it launched in 2016, it was pretty much the only such financier. Nearly all lenders then, and many still, shy away from the business, given the still-illegal status of marijuana on the federal level.
The San Diego-based start-up has capitalized on such capitalization, leaning on sale-leaseback arrangements to grow its portfolio rapidly.
As of Oct. 1, 2021, IIPR owned 75 properties in 19 states, with about 7.3 million rental square feet that includes 2.7 million under development or redevelopment. Every single one of them is fully leased, with the average remaining lease term at approximately 16.7 years. That's stable income for years to come.
Legalization of marijuana is moving rapidly. As of July 9, medical weed was legal in 37 states, and recreational use is in 18 states and the District of Columbia. IIPR has room to grow, even as competitors start to filter in, and if federal legalization happens, the company will be so well positioned that it can withstand the intensified competition expected to follow.
IIPR stock has gotten a bit pricey, closing at $231.07 on Oct. 11, 8.88% off its 52-week high of $253.61 from Sept. 7 but still good for a yield of 2.58% based on an annual dividend of $6.00 per share.
Vanguard REIT ETF
Vanguard REIT ETF (NYSE: VNQ) is an exchange-traded fund (ETF) that follows a REIT index, giving you the benefits of that kind of investment. The terms "ETF" and "index fund" are often used synonymously, but there are some differences. The Fool explains them here.
There are several REIT-heavy ETFs to consider, but the Vanguard entry -- which tracks the MSCI US Investable Market Real Estate 25/50 Index -- is by far the largest, with $78 billion in assets as of Oct. 10, when it closed at $102.81 and was yielding a respectable 3.16% based on a trailing 12-month dividend total of $3.25 per share.
The fund's top 10 holdings are a who's who of REITs that are either the largest in their segments or close to it, including Prologis in logistics; Digital Realty Trust and Equinix in data centers; Public Storage in self-storage; and all three cell tower giants: American Tower, Crown Castle International, and SBA Communications.
This is a passive investment that makes a great case for real estate investors interested in actively growing both the income and growth potential of their portfolios, especially for a long-term retirement account.
Because we're here to help, here's a thorough primer on REIT ETFs that also includes lots of useful information on REITs themselves and their place in a balanced portfolio.
The Millionacres bottom line
The two REITs and the Vanguard ETF we highlight above are just three of hundreds of possibilities out there for investors who want to diversify their holdings in ways that can lower risk while providing good prospects for continued capital appreciation and a dividend yield that should easily exceed what's available from savings accounts and most bond funds.