![]() If investors would suddenly expect a yield of 7% because of a higher interest rates environment, the value of REITs would probably half. The interest rate spread is the difference between the interest the REIT is paying on the loan and the yield on the mortgage backed security it bought, for example. One comparative for investors that we just explained and the second for their margins as the higher the interest rate spread, the higher the profits of the REIT. Additionally, REITs usually borrow money to acquire real estate or mortgage backed securities and thus interest rates play two roles. However, real estate investments, unlike bonds, offer inflation protection as the value of the properties might go up in the future and you can increase rents, thus some REITs should even deserve a premium. If you can get a 6% return on government guaranteed savings, you are going to expect a much higher yield from various real estate investments that are always risky. The above clearly indicates that REITs are interest rate plays. Consequently, REITs did extremely well up to 2016, then as interest rates started going up, then there was a bit of a pause due to the FED making a few hikes, but since Powel capitulated on higher interest rates, REITs resumed their growth. However now, some cash investments accounts do generate around 2% as interest rates increased. In 1999, you would get $6,000 on $100,000 in a normal savings account while during the last years, you would get less than $1,000. In 1999, from when the previous chart measured performance, interest rates have gone mostly down. The main reason REITs did good are interest rates. ![]() Why did REITs do that good over the past 20 years? The goal of this article is to check whether it is smart to invest in REITs now, compare the possible rewards to the risks and avoid being the average investor, as average investors will again underperform almost anything else over the long term. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |