What is a REIT and how does it make YOU money?

The Chris DeBlasio Podcast

- On this episode of "C-Level," I'm visited by my good friend Brad Thomas, the CEO of iREIT, and the author of "The Trump Factor."
- So, tell me, what exactly is a REIT? You're a REIT expert, so tell me a little bit about that.
- Sure. Well first off, you got it right, it is REIT, and it rhymes with beet, rhymes with sweet, all that, so I get, that's the first misconception is, "How do you pronounce it?" REIT stands for real estate investment trust. A REIT is an investment vehicle, like a stock, essentially, so it's a real estate stock, a real estate security. The REIT laws were formed in 1960, so over 50 years ago, actually during the Eisenhower administration, as part of, actually the Cigar Act, and don't ask me why it was under the Cigar Act, but that's what it was, I guess there was a lot of cigars at the time, or people were celebrating. But it was also the period of time in which President Eisenhower was paving the way, paving this country with infrastructure, highways, and so it's really interesting that not only did President Eisenhower pave the way for us to drive across the country, but really, he's paved the way for individual investors to get access to institutionally held commercial real estate, so that's precisely how the laws, or why the law was created over 50 years ago, so that individual investors could enjoy owning a piece of the Empire State Building, or a mall, or a shopping center, or a data center, or a number of other property sectors, so it's really designed for an individual investor, not the institutional investor, so that's really important. So the big thing that I wanna talk about as it relates to REITs, and why this law was structured, I guess the most important characteristic for this REIT is REITs pay out higher dividends than most ordinary stocks. Why is that? Because REITs must by law, that law that was created, again, in 1960, REITs must pay out at least 90% of their taxable income, most pay out close to 100% of their taxable income, so that means that most REITs are gonna yield, that average yield today in the REIT sector in the US is something in around 5%, 4 1/2 to 5%, whereas the ordinary S&P 500 is much less than that, about a half of that, so a lot of retirees have really gravitated to this space, because of the income element and really the flight to quality of income and the thirst for yield, so that's what really makes this a really important asset class.
- Awesome. I've invested in real estate, so I started out really young, like I bought my first property at like my early 20s, or 23, or something like that, and then my strategy was like just buying up these properties myself, like single-family homes and stuff like that, and then renting it out, so what, in your opinion, for somebody instead of just buying up retail properties and renting them out themselves, what are some of the benefits that a REIT could provide the trying to manage everything yourself?

- Sure. Well I did that too, and I've had a lot of duplexes and a lot of that type of property over the years, and so, you suffer the same thing that I suffered, which we call, "The three Ts." Three Ts stands for toilets, trash, and taxes, so those are the things that you have to deal with as a landlord, and they made it very frustrating, it's very stressful. It's hard to sleep well at night, your phone rings all the time, the toilet breaks, the roof breaks, number of other things, so I think that's really one of the things that has really made me, really my passion for this REIT space, because there's a couple of attributes that REITs have today that have always had, that differentiate themselves from ordinary private stock.