Real estate has long been a way for individual investors to grow their wealth, and those opportunities extend far beyond the American dream of a home of your own, though it’s still the place many dive into. first in the possession of land and the building on it.
But why stop there? You can buy properties, both commercial and residential, for sale or for rent. You can also pool your money with others through crowdfunding opportunities or go the more traditional route with real estate investment groups such as limited partnerships and private real estate investment trusts (REITs). and listed on the stock exchange.
Publicly traded REITs, in fact, are a great way for both new and experienced investors to enjoy passive income and stock price appreciation, since REITs are required to pay out at least 90% of their income taxable to shareholders. There are currently over 200 REITs listed on the stock exchange, and they generally focus on specific sectors. There are office REITs, for example, and industrial/warehouse REITs, and others that specialize in apartments or single-family rentals.
What they have in common is providing single-share price access to real estate segments that would otherwise be inaccessible and too complex for the typical individual investor. A good example of this right now is data centers.
Data centers are skyrocketing as the world goes online, and the cost of entry is high
Data centers have been around for a long time, but the days of shipping huge magnetic storage tapes to backup facilities are long gone. Rather, today’s data centers have become full members of the digital highway, providing cloud storage and application support and real-time interconnectivity around the world.
These centers rent out their space to private and government clients and can support a single client or hundreds or more at a time. Their franchise depends on being highly secure, redundant and reliable providers of real-time networks.
And they are very expensive. Industry pioneer Data Foundry pegs the cost of building a hub at around $1,000 a foot, then there’s the $10,000 or more per mile to connect fiber there, then hundreds of thousands. dollars per year in energy and other operating costs.
Or you can buy shares in a data center REIT, although you have far fewer choices than just a few years ago. The three pure games currently trading are equinix, Digital Real Estate Trustand CyrusOne. You can also include iron mountain in this group, now that it is well on its way to moving from physical storage of records to data management. Changea small operator that plans to convert to a REIT this year is expected to join the list soon.
The list has shrunk. Last year, QTS Realty Trust was sold to Blackstone Group and privatized, and CoreSite was sold for $15 billion to the mobile giant American Tower as the largest of all REITs takes a stake in ownership of another key element in the explosive growth of 5G networks underway. That’s not all. CyrusOne has agreed to a $15 billion acquisition by KKR and Global Infrastructure Partners, a deal expected to close in Q2 2022 that would also take that operator private.
Investors looking to get started now might look to Digital Realty and Equinix first. A $10,000 investment in these stocks a year ago around this time would now be worth just over $12,000 and $11,000, respectively, and they’re both reliable dividend-paying stocks. Digital Realty currently yields around 2.9% and Equinix around 1.5%.
It’s not a huge return, but remember that the return goes down as the stock price goes up, and these are two very popular stocks in a hot industry that could show their potential just now. The big bucks think so.
And, certainly in the case of data centers, the entry cost and complexity of investing in their inventory is considerably lower than trying to build one yourself or even as part of a partnership. These are not storage buildings. At least not of the traditional warehouse variety.
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