Many investors believe the real estate sector is a "boring" place to invest and that its returns couldn't possibly match that of the S&P 500 over time.
Nothing could be further from the truth. In fact, it's fair to say that many investors who bought REITs and held on to them for 20 years or more were able to build life-changing wealth as a result.
With that in mind, here are five rock-solid real estate investment trusts, or REITs, that have delivered quarter-million dollar returns (or much more) for investors who had the foresight and patience to invest early and let their money grow by reinvesting their dividends along the way.
Image source: Getty Images.
1. Realty Income
Realty Income (O) is a net-lease REIT that specializes in freestanding retail properties but focuses on tenants that are recession-resistant and that aren't easily disrupted by e-commerce. Just to name a few examples, dollar stores, convenience stores, and drug stores are among Realty Income's top property types.
The strategy has produced decades of consistent income and strong returns. Realty Income recently paid its 600th consecutive monthly dividend and has increased its payout more than 100 times since listing on the NYSE in 1994. Since that time, the stock has delivered annualized returns of more than 15%, and a $10,000 investment at the time of Realty Income's listing 26 years ago would be worth more than $409,000 today.
2. Welltower
Welltower (WELL 1.80%) is the largest REIT that focuses on healthcare real estate. The company owns a massive portfolio consisting of senior housing, long-term care, outpatient medical, and hospital properties. Over the years, the company has done a great job of strategic acquisitions and dispositions, and has taken advantage of the growing need for senior-focused healthcare services in the United States.
The company was founded in the early 1970s and has delivered incredible returns for investors over the years. Over the past 30 years, Welltower has generated a 4,170% total return, which means that investors who put $10,000 to work in Welltower in 1990 would have watched their investment grow to about $427,000 today.
3. Digital Realty
Digital Realty Trust (DLR 0.55%) is the youngest REIT on this list, having completed its IPO just over 15 years ago. However, the growth so far has been simply incredible. As a data center REIT, Digital Realty provides secure and reliable environments for companies to house networking equipment and servers, a market that has grown exponentially over the past couple of decades.
Investors who put $10,000 to work in Digital Realty's 2004 IPO have been handsomely rewarded and would have seen their investment rise in value to $255,000 -- that's an annualized return of more than 22%.
4. AvalonBay Communities
AvalonBay Communities (AVB 0.54%) is the largest residential REIT in the market, and focuses on developing, managing, and operating apartment communities -- primarily in high-cost coastal markets like New York City, San Francisco, and Washington, D.C.
Even though the COVID-19 pandemic has led to rising apartment vacancies in some of AvalonBay's core markets, the long-term returns remain impressive. Investors who put $10,000 into AvalonBay's 1993 public debut would have more than $250,000 today.
5. Public Storage
Public Storage (PSA -0.92%) is the undisputed market leader in self-storage. Most Americans are familiar with the company's orange-themed storage facilities, of which there are thousands in the United States.
Now, many consider self-storage to be a very boring business, and to be fair, it is. But in the best way -- self-storage has fantastic profit margins, steady demand, and great overall economics. Want proof? I saved the best for last, as a $10,000 investment in Public Storage 30 years ago would be worth a staggering $1.31 million today.
Don't ignore the long-term compounding power of real estate
As you can see, real estate has some pretty impressive compounding power over the long run. Not only do commercial properties generate income, but investors benefit from the increasing property values over time, the value created by real estate development, and smart acquisition and disposition strategies that REITs often use.
Too many investors dismiss REITs as a "boring" investment and think their money will be put to better use elsewhere. Don't make that mistake with your portfolio.
