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If there's one industry that's going to benefit the most from a coronavirus vaccine in 2021, it's real estate.
All too often, people think they need tens of thousands of dollars to invest in real estate.
That is not true. Real estate investment trusts (REITs) allow you to invest in a diversified basket of real estate investments for as little as $5 to $10.
They trade like stocks, but instead of owning a piece of a company, you own a piece of hundreds or thousands of real estate investments.
Best of all, REITs are required by law to pay 90% of their taxable income to shareholders in the form of dividends.
So, the yields you can generate on these types of investments are generally much higher than market average (1.8% for the S&P 500).
And the three I found for you today yield 4%, 6.2%, and 8.4%, respectively…
Now, you should know 2020 has been a rough one for many REITs.
Even the best REITs have struggled to get back to even after the massive drop in March as the pandemic began to impact the industry.
Most investors didn't take the time to consider much of anything before selling. If "real estate" was in the name of the business, they were sellers on Wall Street.
We also saw a lot of uninformed forced selling from the ETFs and REIT Index funds.
With limited exceptions, the buying pressure never came back into the REIT markets.
That should change in 2021. The grim headlines about unpaid rents and empty office buildings should fade away when a coronavirus vaccine gets distributed and we get back to normal.
The "new normal" will bring attention and money back into the REIT markets, and the best REITs to buy now should provide superior total returns.
The three REITs outlined below should be among the very best performers in 2021.
No. 3: The Best REIT for Apartments
There has been a lot of noise around apartment rents and the difficulties faced by some tenants leading to problems for property owners.
This created selling in many apartment REITs, including market leader Equity Residential (NYSE: EQR).
It should not have.
Equity Residential collected 97% of its expected residential revenue in the third quarter of 2020.
Equity Residential owns 305 properties consisting of 78,568 apartment units, located in Boston, New York, D.C., Seattle, San Francisco, Southern California, and Denver.
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The company's properties tend to be among the best in town, with tenants that have close to six-figure average incomes.
It did experience some big city flight due to COVID-19 and civil unrest in 2020. But EQR is still experiencing a 94.8% overall occupancy rate, so there's no need for investors to fear there.
When a vaccine is approved and widely disturbed, occupancy rates will stabilize even more for Equity Residential.
Although we will see many businesses and potential tenants leaving key markets, they won't leave Equity Residential's premier properties.
Older buildings with fewer amenities may struggle, but these top-tier apartments should continue to perform well.
Shares of Equity Residential yield a little over 4% right now. There is also the potential for appreciation of 50% or more in 2021 as REITs come back into favor.
No. 2: The Best REIT for Mid-Sized City Offices
City Office REIT Inc. (NYSE: CIO) owns office buildings in what it calls "18-hour cites" in the West and Southeastern United States.
These are mid-sized cities with attractive amenities, higher-than-average population growth, and a lower cost of living and cost of doing business than the biggest urban areas, according to Investopedia.
CIO's key markets include Dallas, Denver, Orlando, Phoenix, Portland, San Diego, Seattle, and Tampa.
These are the types of cities that many of those fleeing bigger cities (like New York and Los Angeles) will be moving to in 2021. These cities have the arts and culture and even the sporting events of the big cities.
What they do not have is the population density that causes pandemics to thrive, near-constant civil unrest, and rising crime rates.
These cities also having growing populations and favorable economic growth trends. They all have access to top-tier universities and large national employers.
City Office REIT is seeing strong demand for its office properties, and tenants are paying the rent. Their buildings have a 93% occupancy rate, and 99% of expected rents have been paid.
The shares are yielding 8.4% right now and have substantial upside potential in 2021.
As the office markets improve and City Office continues to see demand from businesses leaving the big cities, this REIT has the potential for a triple-digit total return in 2020.
Insiders like what they see as they have been buying shares since March. The CEO and CFO were both buyers in September.
The Best REIT to Buy for 2021
WP Carey Inc. (NYSE: WPC) should also be among the leading REIT performers in 2021.
This is one of the best and largest "triple net lease" REITs. Its portfolio of net leases consists of 1,215 properties, comprising 142 million square feet leased to 351 tenants, with a weighted-average lease term of 10.6 years and an occupancy rate of 98.9%.
The company's properties are in the United States as well as Western and Northern Europe.
Its tenants paid as 98% of expected rents in the third quarter.
WPC's portfolio consists of industrial, warehouse, office, retail, and self-storage properties leased to single tenants on a long-term basis.
Under the triple net structure, the tenant pays maintenance, insurance, and taxes.
Forty-seven percent of the portfolio is in industrial and warehouse space that will benefit from e-commerce trends.
W.P. Carey shares are yielding 6.2% right now, and I expect to see substantial appreciation in the share price as well over the next year.
After a tough 2020, real estate and REITs should be back in favor in 2021, and we expect these three top REITs to be among the industry leaders.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.