Why a Bear Market is the Right Time to Invest in REITs

Hold on tight, we’re in a bear market. The S&P 500 index has dropped a whopping 15% YTD in 2022. In periods of corrections, investors look toward assets with a margin of safety, which often manifests in the form of solid cash flow and conservative leverage. With the U.S. economy showing signs of a potential recession, now could actually be the perfect time to invest in REITs (Real Estate Investment Trusts).

“REITs can benefit from price increases for rents and from higher real estate values during hotter inflationary periods.” wrote Sam Stovall, chief equity strategist at CFRA Research. Investors see inflation everyday when they’re at the market, the gas pump, or buying a car. Holding onto real assets helps mitigate these detrimental effects whenever inflationary bouts occur.

REITs can be a great way to diversify your portfolio and generate income, especially during periods of economic uncertainty. But why invest in REITs when everyone else says “sell“?

1. REITs are required by law to pay out at least 90% of their taxable income to shareholders in the form of dividends. This makes REITs a great source of regular income during times when other investments may be struggling. Since REIT operators collect revenue from tenants through leases, this revenue is often not interrupted in the short term.
2. REITs tend to be less volatile than stocks, making them a more stable investment during economic downturns.
3. REITs are often less affected by recessions than the overall stock market, and can even provide positive returns during periods of economic turmoil. Streitwise’s last dividend was over 8%, for example, which is far higher than public stock market returns.
4. Investing in REITs can help diversify your portfolio and protect against losses in other areas of the market. While virtually every asset class is down this year, non-traded REITs like Streitwise have seen positive returns through the year and have target returns that aim to be far higher than comparative investments.

Regardless of market factors over the rest of the year, we are comfortable operating in the current environment. Why?

  • We have always invested with downside outcomes at the forefront of our underwriting.
  • We generate a majority of our revenue from established companies with strong financial wherewithal.
  • We do not use excessive portfolio leverage.
Read more about how REITs and real estate are a natural inflation hedge.