This Is How To Secure Your Dream Retirement
Did you play Monopoly as a kid?
The winner always amassed the most hotels, and this strategy is also a great way for investors to win at the retirement game.
Most investors are familiar with real estate investment trusts, or REITs. But one specialized and very profitable niche is often overlooked by most folks.
REITs invest in a wide variety of real estate, from office buildings to storage units to apartment buildings.
The niche I’m talking about today, however, are the hotel/lodging REITs, which own and manage hotels and resorts.
Hotel REITs can range from budget hotels along busy interstate highways to luxurious five-star resorts in highly desired vacation destinations.
There are lots of hotel REITs — more than 20 — to choose from. And they are especially attractive to income-focused investors because Congress made them exempt from corporate taxes, provided several strict conditions are met.
The most important of which is that they must distribute at least 90% of all of the profits in the form of dividends to shareholders.
This is why REITs pay much fatter dividends than blue chip stocks.
How much fatter you ask?
Hotel REITs pay out an average dividend yield of 5.5%!
You may not recognize the names of these hotel REITs, but you’ll definitely recognize the hotels that they operate.
A few examples include Host Hotel & Resorts (Marriott, Ritz-Carlton, and Sheraton), Sotherly Hotels (Hilton and InterContinental) and Hospitality Properties (Residence Inn, Staybridge Suites, TownePlace Suites).
Here’s the complete list of hotel/lodging REITs.
Hotel REITs are very sensitive to the economy. They go up or down depending on hotel occupancy, which goes up or down with general economic conditions.
That’s been a blessing for hotel REIT investors. Since Trump was elected in November 2016, the lodging REIT index has outperformed the MSCI U.S. REIT Index by over 2,350 basis points through April 16, 2018.
Plus, hotel REITs have historically done very well during periods of rising interest rates like we have today.
The Federal Reserve has raised interest rates five times already. This increase in short-term interest rates is confirmation of an improving economy, which is usually a boon for hotels.
And this economic strength has translated directly into higher hotel room prices. The Bureau of Labor Statistics reporting U.S. hotel/motel rates have risen 2.6% in March.
And this economic strength has translated directly into higher hotel room prices. The Bureau of Labor Statistics reports U.S. hotel/motel rates have risen 2.6% in March.
And over time, the properties that many hotels sit on are also rapidly increasing in value.
In many cases, such as in crowded cities with scarce developable land, hotels have appreciated rapidly, meaning a well-managed hotel REIT will deliver strong capital appreciation as well as a steady stream of fat dividends.
One downside to REITs is that their distributions are not considered “qualified dividends.” This means that they are taxed as ordinary income instead of the lower dividend tax rates that max at 20%.
But this one negative aside, hotel REITs make a great income move.
Financing a comfortable retirement isn’t like playing Monopoly.
But in the spirit of the game, you should know hotel REITs are one of the best ways to live like a king in your golden years.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch