Generational Opportunity: 1 Reliable Income Investment That’ll Put the S&P 500 to Shame
The Motley Fool
Published Jan 20, 2019 11:45
Updated Jan 20, 2019 12:06
Every once in a while, there’s a generation opportunity that’s too good to pass on. Typically, such opportunities are with firms that are well positioned to take advantage of an inefficient market where supply and demand are heavily imbalanced. The window of opportunity is usually limited, but for firms with the capacity to deliver on the supply side, there are massive economic rewards to the firm’s investors.
Enter Canadian Apartment Properties REIT (TSX:CAR.UN), or CAPREIT, a run-of-the-mill residential REIT that you’ve probably heard about many times. It’s the one with the meagre 3% yield and the chart that looks like that of a momentum stock.
Don’t be fooled though, as CAPREIT is a smooth operator that’s still subject to the requirements put forth by REITs. The trust is required to pay out a fixed amount of net income to shareholders in the form of a distribution, and for many REITs that stunts long-term growth . So, with these requirements in place, how has CAPREIT been able to break the trend by rocketing higher in spite of the “high-yield, low-growth” template that many investors think about when it comes to REITs?
CAPREIT is in the right place at the right time, as I’ve said in prior pieces. But more importantly, management knows it’s at the right place, and it’s doubling down on the markets that’ll allow it to reap the fruit of severe supply-demand imbalances within specific rental markets.
Of course, I’m talking about rental markets like Toronto and Vancouver, both of which could be described as a rental state of emergency.
CAPREIT is doing everything in its power to help on the supply side to get select rental markets back to equilibrium. Since demand is off the charts, CAPREIT really doesn’t need to worry about boosting its occupancy, especially in the early stages of the development of a new property. Pre-leases will be scooped up by local renters, and it’s nearly guaranteed that new residential complexes will have vacancy rates much lower than the 1% mark.
Moreover, since CAPREIT is supplying a much-in-demand product to locals, the company can raise rents at or well above market rates. In such a rental market like Vancouver or Toronto, the market equilibrium is so severe such that the trust can hike rents comfortably above current market rates and have no problem filling the units with tenants.
Get The App
Foolish takeaway on CAPREIT It’s a dire situation for renters but an opportunity of a lifetime for CAPREIT — a company that has the ability to make a killing thanks to the fortunate hand it’s been dealt. As far as I’m concerned, CAPREIT is a rare opportunity in spite of its modest yield, so investors should feel comfortable betting on the name on its recent dip.
Legendary investor Phillip Fisher refers to businesses like CAPREIT as “fortunate and able.” CAPREIT is fortunate because it’s in the right places at the right times, and able because management has what it takes to take advantage of the opportunity at hand to its fullest.
Stay hungry. Stay Foolish.
Fool contributor Joey Frenette has no position in any of the stocks mentioned.
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.