Real Estate Investment Trusts (REITs) have become quite the darling of the investment world lately. Why? A number of reasons can be cited. First, REITs are associated with sizable dividend yields, which speak to a large class of investors that can only obtain fractions of a percent in a savings, CD or money market account. Second, they are tied to property, which many believe creates a certain base for stock prices in the case of a market downturn. Lastly, they offer a way to diversify a portfolio’s holdings beyond your run of the mill Dow Jones multinational companies.
REITs bring a lot of things to like to the table. I’m actually a fan of the concept and the investment vehicle. With that said, I would not say that all REITs are created equal, just as not all restaurants, tech companies or energy producers are created equal. REITs are subject to the laws of supply and demand, just as any other business is subject to such laws. Given that fact, it is very important that you invest in a REIT that is supplying housing, storage, office space, wireless towers or some other service that will be in demand in the future.
How do we know for certain what will be in higher demand in the future? One method is to look at human tendencies, past behavior and demographic trends. One demographic trend that I mention often is the transition of Baby Boomers out of the labor market and into retirement. As with their parents and their grandparents, as people age warmer climates become more preferable. One large reason is that your joints ache more when you get older and colder climates tend to exacerbate the problem. Therefore, more temperate climates are sought out.
Florida has become synonymous with retirement communities. The state has welcomed this population for years and has a recipe for success in attracting and retaining retirees. With the human condition remaining constant and a massive demographic block getting to the age where retirement communities seem to be more and more relevant, you can guess where this trend is heading.
The state of Florida is at the start of receiving another wave of out of state transplants. As the Baby Boomers retire and advance in age, they will continue to flock to Florida. Any REIT that has a large footprint in Florida will have the wind at their back in terms of growing operations and increasing profitability. It’s much easier to run further and faster when the wind is at your back, just as it is easier to thrive as a business when external conditions are in your favor.
In the next installment we will look at some recent Florida real estate statistics and explore a few investment options to consider.