Who Says REITs Can’t Make You Rich? Here’s a REIT With Huge Upside!

Interrent REIT (TSX:IIP.UN) is a wonderful REIT with a distinct advantage that can help enrich prudent investors young and old.

| More on:

REITs can get a pretty bad rap with younger investors like millennials. They’re boring investments that are more suitable for our parents or grandparents, given their relative lack of capital upside relative to equities.

Some REITs go nowhere over prolonged periods, leaving investors with only the distribution to show for their patience. And given the uneventful nature of such investments, it’s not a surprise to see REITs the “retiree” label slapped on the whole asset class.

You don’t usually think of substantial capital appreciation when it comes to REITs. The yields are typically outsized, the movements aren’t as pronounced as stocks, and it doesn’t make sense to trade them.

Despite the low-volatility, slow-and-steady nature of the REITs, they still deserve a spot in the portfolio of younger growth-oriented investors.

Why?

REITs are an alternative investment that can help one lower their portfolio’s correlation to the broader markets. On average, the REITs possess a low beta and tend to be less dependent on news that’s more relevant to the average publicly-traded company.

REITs lease out rental units and collect monthly rent, and a temporary headwind isn’t going to deliver a shocking surprise to profits for a given quarter.

Moreover, there are underrated REITs out there that are able to grow despite their colossal and growth-stunting distribution commitments.

If a given REIT is returning 90% of its taxable income into the pockets of its shareholders, there’s only so much capital you can put to work to fund ambitious growth projects.

That’s why I like looking to REITs that are either “fortunate” enough to operate within a real estate sub-industry that enjoys a tailwind blow or possess a unique set of talents that separate it from the average TSX-traded REIT. Consider shares of Interrent REIT (TSX:IIP.UN), a residential property player that’s in the latter category.

Interrent has a proven growth model of acquiring challenged properties that typically have “baggage” on the cheap. Whether the baggage is sub-par building management or outdated units that are in dire need of renovation, Interrent goes on the hunt for such properties with the intent of creating long-term value for its shareholders through “synergies.”

A rundown unit in a poorly-managed building typically can’t command rents that are that high. Where Interrent excels is their ability to spruce up existing units, improve a building’s management, and add the odd amenity to allow the REIT to charge a higher rent to beef-up its AFFOs.

Most acquisitions come with a significant set of risks, and over the years, Interrent’s exceptional stewards have proven they have a knack for mitigating such risks.

The results really speak for themselves. Interrent shares have rocketed 170% over the last five years. Given the relatively small size of the REIT ($2.1 billion), the name is likely nowhere close to being at peak growth, as management continues replicating its unique and successful growth strategy.

As an added bonus, the REIT sports a 0.16 beta, making it a fantastic way to beef up your portfolio’s risk/reward profile!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »