Buying REITs

I'm sure many of you who saw the show on CNBC yesterday will have the same question Clara had:

You mentioned General...?  REIT on the CNBC special.  You did not give the symbol.  Please tell me, what is the name or the symbol.  I own real estate.  I would like to buy the right REIT.  Thanks so much.

Clara

The REIT I mentioned on CNBC's The Millionaire Inside was General Growth Properties:  GGP. 

But only buy it when it is cheap.  And right now it isn't.  There was so much I wanted to say but time was short. 

Here's a doozy on real estate REITs:  In 1990 they sold for the value of the real estate less 20%. 

Today they sell for the value of their real estate plus 20%. 

In 1990 the REITs were buying property for 8-10% cap rates (the rental income divided by the price of the property).  Today they are paying a lot more:  the cap rates are down to 3%.  That should tell you something. 

The first thing it should tell you is that the stock market is not the only market that can bubble.  The second thing it tells you is that real estate prices are either going nowhere or down... or rents are going up like crazy. 

Since it's hard to just raise the rent in a market with a lot of empty homes and apartments (because of all the building) rents aren't likely to just shoot up.  Which means if you are buying real estate right now, you should be very careful about where and about how much you are paying.

And please take my advice about knowing what you are buying very seriously with regard to real estate and REITs.  Do NOT just go buy a REIT.  Please check it out carefully.  Find out what the real estate is worth as if you were going to buy the real estate yourself. 

Remember, you guys, the most important part of making money is buying for a discount to the real value.  If you buy a dollar of value for fifty cents you are going to make a lot of money whether it's real estate, REITs, private businesses or stocks.

Now go play.

Phil