Can I get rich with REITs?

Short answer: no. But baby it’s not you, it’s just the math. Now, we can get bogged down on arguments of what it means to be “rich”, or whether the question is really talking about passive income more than it’s talking about net worth, but I’m going to save all of that detail for other blogs to cover. According to some surveys, to be in the top 10% of income, you need to earn P60k to P70k per month (or more), and to be in the top 1% of income earners you need to earn P150k to P200k per month (or more). Of course, with something like weather, the temperature outside can be 35C, but there’s a difference between 35C with 80% humidity and a light wind, and 35C with 100% humidity and no wind at all. That 35C can “feel like” 40C in a hurry. Income is like this as well. There’s a difference between earning P50k/mo while living at home in Tarlac and earning P50/mo while living on your own in Makati. That P50k/mo can start to “feel like” P20k. But let’s forget all of that. Let’s just try to get into the top 10%. Using REITs, what do we need? Well, we need to generate at least P60k (gross, before tax) per month. Let’s convert that to a quarterly figure (x3) which is ?180k, and an annual figure (x12) which is P720k. Forgetting about the capital appreciation (or depreciation -- amiright, DDMPR?) side of REITs for a second (that’s not income-related; we’re focused on the dividends which will be converted into money in our pockets), the highest-yielding REIT right now is VREIT with an estimated annualized yield of 9.93%. The lowest-yielding REIT is AREIT with an estimated annualized yield of 5.82%. That means if we invested P10,000 in VREIT today we’d hope to earn P993 in dividends this year, and if we invested P10,000 in AREIT today, we’d expect to earn P582 in divs. Of course, these annualized yields are just guesses based on past performance, and past performance does not guarantee future performance. We can’t be certain that these REITs will continue to payout at these levels. Many REITs have seen their dividends fall off significantly, like DDMPR, FILRT, and PREIT. Many have seen their dividends grow over time, like AREIT, RCR, MREIT, CREIT, and VREIT. Ok, so what initial investment into AREIT or VREIT would it take to get our annual dividend income up to the P720k/year we need to qualify for top 10% income? For AREIT, we’d need to own P12.4 million worth of stock. For VREIT, we’d need to own P7.3 million worth of stock. That’s the basic problem: REITs (and interest-generating investment options) are just one tool that a person can use to generate wealth, but they themselves are not the thing the wealthy use (or even could use) to become wealthy. If you have P12 million to dump into REITs, you’re already doing great, and you probably already earn a salary that puts you in the top 10% of income earners (even mostly likely into the low single digits). REITs are a great way to generate some income, to reduce the ravages of inflation, to diversify your portfolio, and to gain exposure to certain real estate types without having to actually own property.

MB bottom-line: To me, some REITs (not all REITs) operate the way that a stablecoin like Tether (USDT) or USDC might in the crypto space; they’re a way to lock-in gains from my more risky investments in a way that keeps the money “in the market” and available should a better opportunity arise. They’re not exactly the same thing (stablecoins are configured to remain pegged to the US Dollar, whereas REIT valuations fluctuate), and this analysis ignores the massive impact of what could happen to your investment due to shifts in the underlying price of the REIT, but the comparison is helpful to frame REITs properly as a helpful tool for passive income generation rather than as a cheat code for entrance into the top levels of wealth. As I hope this example has shown, you need to already have a massive pile of cash (P7 million to P12 million) to even own enough REITs to hope to generate enough cash to make the equivalent of P60k/month, and that’s an ask that is beyond the reach of all but a select few. REITs are a great saving tool, but as with any saving tool, the income you generate to put into the tool is (by orders of magnitude) more important. If you currently make less than P60k/mo, I  guarantee you will make bigger monthly gains by reducing your expenses and figuring out other ways to increase your income than you will putting some portion of your income into REITs. I love REITs, they’re just not a magic bullet!

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