Traditional bricks-and-mortar property investors have shied away from REITs (real estate investment trusts) like Dracula shies away from garlic. But Dragons' Den star Kevin O'Leary tells CREW those alternative real estate investments have their place in a portfolio. You've just got to choose wisely.
Pick up the September issue of CREW, now on newsstands, for an in-depth interview with this controversial venture capitalist.
Video transcript below:
Crew TV: Kevin O’Leary, the entrepreneur turned TV personality knows a thing or two about real estate, especially on how to make money in the game. The Dragon’s Den star is also a big fan of REITs. Speaking exclusively to Crew TV, he explains why REITs are a good investment alternative and why real estate is still the number one asset choice.
Kevin O’Leary: Is the REIT market overheated? It’s a relative term. If you think about fixed income opportunities, let’s take government 10 year bonds. Would I invest in a 10 year [GoBi] at under 3% yield. No. So I wouldn’t allocate my money there. I’d rather take the risk in a REIT providing 5%, maybe 6%. The risk there is, which REIT. Obviously you want REITs that are less prone to corrections in asset value when they start going up and so you know to a certain extent you can find that in the Canadian market, but what I found over a long period of time, if you stick with high quality REITs you weather the storm a lot better .
More liquidity, less volatility and really more stability. But this is now a time to say to yourself, okay we know rates are going up, let’s save in the next is my guess and this really matters to the investor. If you go back to 2003 to 2007, it was a period where we had 200 basis points or 2% increase over a multi year period. It’s slow climbed up, very very passive, very slow, 25 basis points at a time, that’s what I think we are going into. And actually real estate performed very well during that period, because it wasn’t a violent increase in rates and I think we are going to have that.
So it really becomes an asset allocation decision. If you have 30% of your net worth in real estate now, maybe it’s a wise idea to move it down to 20, because you have to weather the storm of rate increases, but they will be slow and steady in my view. So going to zero in real estate is not a good move because it has proven over many decades to be a great asset. It provides stability to the portfolio. I am speaking now as an institutional investor and as an individual. There is never a time in your life you want to be zero in real estate.