When it comes to real estate stocks (or pretty much every other type of investment), there's no such thing as a guaranteed get-rich-quick route. Sure, there are some real estate investment trusts (REITs) that could double in 2021, but they could easily go the other way.
Having said that, there is a surefire way to get rich slowly with REIT investing. Buy REITs designed to grow and compound your money over time, and then sit back and let them do the hard work for you. Three REIT stocks in particular that are about the closest things you'll find to guaranteed ways to get rich over time are Realty Income (NYSE: O), Digital Realty Trust (NYSE: DLR), and Vanguard Real Estate ETF (NYSEMKT: VNQ).
Slow and steady income and growth can make you rich
I've referred to Realty Income as the best overall dividend stock in the market for long-term investors, and I still feel that way. I've been a shareholder for some time (Realty Income was actually the first REIT I ever bought) and have continued to add shares over the years.
If you aren't familiar, Realty Income primarily invests in freestanding, single-tenant properties occupied by retail tenants. But not just any retailers. Realty Income specifically targets properties unlikely to be disrupted by e-commerce competition or recessions. To name a few examples, some of the top property types are dollar stores, convenience stores, and drugstores -- businesses that generally perform well no matter what the economy is doing (and even during global pandemics).
The proof is in the numbers. Realty Income has delivered a 15.3% annualized total return since its 1994 NYSE listing and pays monthly dividends that have increased for 93 quarters in a row. A $10,000 investment in Realty Income's NYSE listing 27 years ago with dividends reinvested would have grown to more than $460,000 today. Who says slow-and-steady growth can't make you rich?
A major player in a growing real estate market
Digital Realty Trust is one of the largest REITs focused on data centers and is actually one of the biggest REITs of any kind in the market. And it's likely to get significantly bigger in the years ahead.
Think of data centers as the physical "home" of the internet. When you access a cloud-based software program, view an investing article like you're doing now, or upload a new photo album to your social media, all that information has to physically live somewhere. And not just anywhere. It needs to be readily and quickly accessible, 24 hours a day, no matter what. That's where data centers come in. They are facilities built for the specific purpose of housing servers and other networking equipment in a secure and reliable environment.
With the gradual rollout of 5G and the surge in data-heavy connected devices, the volume of data flowing around the world is likely to continue to grow rapidly in the years ahead, and Digital Realty is likely to be one of the biggest winners. Since going public in 2004, Digital Realty has delivered an impressive 2,110% total return to investors (about 20% annualized), and there's no reason to believe the company is going to slow down.
Why not just buy it all?
As a final choice, the best real estate stock if you want to simply buy and forget about it is the Vanguard Real Estate ETF, an exchange-traded fund that tracks an index of REITs.
For a bit more color, the fund owns a total of 174 real estate stocks as of the latest available information, and it's weighted by market cap, meaning larger companies make up a greater portion of the fund's assets (naturally, Digital Realty is one of the top holdings). It owns REITs in a diverse assortment of sectors and charges a rock-bottom 0.12% expense ratio, which means that for every $1,000 you have invested in the fund, your investment fees on an annualized basis are just $1.20.
Based on the current price, the Vanguard Real Estate ETF has a 3.8% dividend yield, and it's produced annualized returns of about 8.7% over the past decade. If you're looking to put your REIT investing on autopilot, this could be your best bet.