Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Find Out How to Amazon-Proof Your Real Estate Portfolio

Housing-Market / US Housing Jul 07, 2017 - 06:21 PM GMT

By: Charles_Sizemore

Housing-Market I recently heard Amazon, the world’s largest online retailer, described as a “bull in a china shop” for the way it’s disrupted industry after industry.

But that’s really the wrong analogy. An angry bull lashes out erratically, goring or trampling whatever happens to be in front of it at the moment. Amazon is far too mechanical for that.

The better comparison for Amazon would be a steamroller. Like a steamroller, Amazon slowly and methodically flattens everything in its path.


Bookstores?

Obliterated.

Shopping malls?

On life support… and just barely.

Department stores?

Dying a painful death by 1,000 cuts.

Even grocery stores, convenience stores, and pharmacies – businesses long believed to be “Amazon-proof” – are now at risk of being run over.

With the entire brick-and-mortar retail economy seemingly under attack, retail-focused real estate investment trusts (REITs) have absolutely gotten smashed

National Retail Properties (NYSE: NNN) – an ultra-high-quality retail landlord I previously recommended in Boom & Bust but have been out of for a while – is down about 20% over the past year, even while the broader stock market is close to all-time highs. And National Retail is the bluest of the blue chips with exceptionally strong tenants.

Some of its more mediocre competitors are down significantly more. Spirit Realty Capital (NYSE: SRC) – which has weaker tenants more directly in Amazon’s path – has seen its stock sink by nearly half in the past year.

What’s the takeaway? Are we looking at a nightmare future of boarded-up shop fronts and decaying, dilapidated retail real estate?

Not exactly.

In fact, Warren Buffett’s Berkshire Hathaway just made a major investment in a retail-oriented REIT. There’s still a lot of value to be had in real estate, at least if you know what to avoid.

So today’s let’s go over some things to keep in mind when putting together an “Amazon-proof” portfolio.

#1: Focus on services.

Amazon drones won’t cut your hair or do your other half’s nails any time soon. Basic personal services, such as barbershops or hair and nail salons, tanning beds and even gyms and movie theaters are about as Amazon-proof as they come.

It’s worth noting that the REIT that Buffett purchased has about two-thirds of its portfolio in properties tied to the service sector.

Shopping malls have been dying for years. I don’t consider that up for debate. But the strip mall next to your house – the one that probably has a dentist, a Starbucks and a dry cleaner in it – should be just fine. Amazon is not realistically a threat here.

#2: Focus on demographics.

One of our specialties at Dent Research is using demographic data to forecast consumer spending, and this works phenomenally well with real estate.

Consider nursing homes or assisted-living facilities. With the aging of the Baby Boomers, it’s a foregone conclusion that demand for these kinds of properties is about to go through the roof.

There’s just one big problem with trying to invest in this space: the person picking up the tab is Uncle Sam, via the Medicare and Medicaid programs. And Uncle Sam can – and does – arbitrarily change the reimbursement rate he pays for services.

I have no interest in trying to invest in a nursing home operator. And, for that matter, I wouldn’t want to be a doctor these days either. The risk that the government changes the payment rate and grinds profits to nearly zero is a risk I’m not willing to take.

But I’m perfectly comfortable being the landlord in this situation. While the government is very likely to crimp profitability in the years ahead, it’s not likely to actually drive nursing home operators out of business. As a landlord, you don’t need your tenant to be loaded. You just need them to make enough money to continue paying the rent.

One of the most profitable recommendations in Boom & Bust’s history was in a REIT that specialized in skilled nursing properties.

And, not surprisingly, that same REIT recently popped up on my friend John Del Vecchio’s quality screen in his newsletter, Hidden Profits. (Learn more about John’s approach here.)

#3: Be careful with hotels, office buildings, and apartments.

President Trump will very emphatically tell you that he’s never personally been bankrupt, and I believe him. But in his career as a hotel and casino mogul, he’s had a handful of colossal failures.

Hotels and casinos tend to be expensive trophy assets that, because of their high purchase prices relative to the rent received, often fail to generate a reasonable return for their investors.

They’re also highly cyclical and get hit hard during recessions when business travelers and vacationers cut back on travel. The same is true of ritzy office buildings and high-priced luxury apartments.

Boring, distinctly non-sexy properties like storage units and warehouses often make far better investments than trophy assets because the rents collected tend to be high relative to the price paid for the properties.

So again, avoid trophy assets or REITs that buy trophy assets and focus instead on less exciting addresses that throw off a lot of cash.

#4: Remember, real estate is all about cash flow.

And, finally, remember that real estate is first and foremost an income investment.

This makes it perfect for my newsletter, Peak Income. I currently have three REIT investments in the model portfolio, and I’m looking to add a new one this one that has all of the characteristics I covered today: It’s service-based, is backed by strong demographic trends, is delightfully boring, and throws off a tremendous amount of cash every quarter.

And, most important of all, it’s Amazon-proof.

Click here to learn more about how you can get in on the action!

Charles Sizemore

 Portfolio Manager, Boom & Bust Investor

https://economyandmarkets.com/author/charles-sizemore/

Copyright © 2017 Charles_Sizemore - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in