AWP - I'm Building A Global Real Estate Empire Earning +12% Yields

2023-12-27 07:35:00 ET

Summary

• I've laid the foundation on my global real estate empire, and it's literally paying me dividends already.
• My portfolio is fine-tuned to produce a massive flow of cash into my coffers.
• Your retirement can be filled with ease and splendor if you do likewise.

Co-authored by Treading Softly

The very first job that I ever held was at McDonald's. There, I learned some of the very rudimentary basics of customer service. I fulfilled almost every job during my three years of working there, from taking orders at the cash register to cooking the food in the back to even doing various maintenance work around the property. I distinctly remember there being one old maintenance worker who would come in and do work on the ever-broken ice cream and milkshake machines - Yes, even back then, the machines never worked as expected.

He only worked one or maybe two days every week. He seemed to set his hours, show up when he wanted to fix it, and leave. Whenever we would ask the owner of the store why they would put up with this crotchety old man who kind of did whatever he wanted, he responded that he was one of the only people who could fix the machine, and he only worked for his enjoyment. You see, this old man owned a large swath of real estate around the city, rented out multiple homes, and had a strong income stream. He came to fix the machines only as a way to keep himself busy and because he enjoyed working with machines, not because he needed the income from the job whatsoever, and apparently, most weeks and months, he wouldn't even cash his paycheck.

When it comes to the market, you don't need to have the capital to own a whole bunch of different homes or different properties or be a property developer anymore. During the '70s and the '80s or even '90s, many people tried to become real estate moguls by loading themselves up with debt or leveraging themselves up to their ears.

Today, I want to look at a way to build a global real estate empire from the comfort of your own home without needing billions of dollars to do so.

Let's dive in!

A Global Portfolio

When interest rates rise, the market sells REITs. Now that the market is believing that interest rates are at or near peaking, we have seen REIT prices going back up.

abrdn Global Premier Properties Fund (AWP), yielding 12.4%, is a CEF with a focus on global REITs. While U.S. REITs make up the largest portion of the portfolio, non-US REITs make up 37% of it. Source

This provides some international exposure for portfolios that are often US-centric. With a strong U.S. dollar and the economy in the U.S. generally outperforming, this international exposure has been a negative to AWP 's performance relative to other funds that focus on the U.S.

When we look at ETFs, Vanguard Real Estate ETF ( VNQ ), which is US-focused, has outperformed the Vanguard Global ex-US Real Estate ETF ( VNQI ).

AWP's results are right in the middle, which makes sense because it is about two-thirds U.S. and 1/3rd non-US with modest leverage.

Many investors will look at AWP and compare it to just VNQ. "It's underperforming! SELL, SELL, SELL!" they exclaim. Completely ignoring the fact that they are comparing apples and oranges.

One of the main reasons for buying funds at all is to gain diversified exposure to asset classes you might not otherwise hold in your portfolio. That is an important part of being diversified. AWP has seen a lot of negative pressure on its European holdings like Vonovia SE ( VONOY ) as the real estate markets throughout Europe have seen struggles that are on par with what happened in the U.S. during the Great Financial Crisis. Prices have crashed, dividends have been cut, and investment returns have been poor. Do you know what the GFC was in the U.S.? It's a spectacular time to be buying U.S. REITs.

AWP's strategy of having a combination of U.S. and non-US REITs has allowed the relatively strong portion of its portfolio to fund the dividend. When we consider whether or not a dividend is sustainable for a CEF, we need to understand that CEFs pay out a combination of both the income they receive and capital gains. No investment portfolio is going to provide uniform returns - sometimes gains will be high, and some years, there will be no gain at all. CEF managers set the dividend at a level they believe will be sustainable going forward over the long term.

Like your portfolio or any other portfolio, you will have investments that are both up and down at any given point in time. When we look at "NAV", we are seeing the net unrealized change in values of all holdings in the portfolio. Here is page 22 of AWP's semi-annual report :

Note that AWP had just under $44.5 million in unrealized gains but $48.5 million in unrealized losses. It has some holdings that are up and others that are down. Just like when you go to sell in your portfolio, management has the option to realize losses or sell something that realizes gains.

There are signs that real estate is bottoming out in Europe, and U.S. REITs are perking up with the prospect of the Fed backing off of rate hikes. This creates conditions where both sides of AWP's portfolio will see positive momentum, something it hasn't seen since the recovery from COVID - which is also the last time AWP was trading below $4.

Conclusion

I've learned that the best time to buy something is when no one else thinks it's a good time to buy it. The same goes for saying that you should "buy low and sell high." Unfortunately, so many investors fail to outperform the market simply because they "buy high and sell low." They buy something that they think everybody else is buying already, and then they sell things when they see other people selling it. Usually, these investors end up being a day late and thousands of dollars behind. This is why when I developed my unique Income Method, I designed it to have a different goal than the lemmings in the market. I'm not blindly chasing after capital gains. I'm controlling the part of the equation I can control - the income that I'm going to get paid.

When it comes to retirement, the last thing I want you to have to do is work to be able to pay your bills. I want you to have an empire of income-producing investments that will pay for your retirement, and then you can be like that old man and work if you want to for the enrichment, not because you need the cash. For many, they would love the opportunity to be able to say that they don't have to clock in for a job because they need the money, but because they choose to do so, that will revolutionize how you approach your work in the workplace. Likewise, your retirement will be revolutionized if you have more income and less stress, something that is completely possible with my Income Method.

That's the beauty of my Income Method. That's the beauty of income investing.

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