TV

Reporter:  Entrepreneur and TV personality, Kevin O’Leary is out of government bonds, but he remains a fan of REITs.  Speaking to Wealth Professional, he explains why he thinks REITs are good alternative investment.  However, he advises some caution, up next on WP.

 

Kevin O’Leary:  Is the REIT market overheated?  It’s a relative term.  If you think about fixed income opportunities, let’s take government 10 year bonds.  Would I invest in a 10 year Gobi at under 3% yield. No.  So I wouldn’t allocate my money there.  I would rather take the risk in a REIT providing me 5%, maybe 6%, the risk there is which REIT?  Obviously you want REITs that are less prone to correction in asset value when rates start going up and so you know, to a certain extent you can find that in the Canadian market.  

 

But what I found over a long period of time, if you stick with high quality REITs, you weather the storm a lot better, more liquidity, less volatility and really more stability.  But this is now a time to say to yourself, okay we know rates are going up.  Let’s say in the next, it’s my guess and this really matters real estate investors. If you go back to 2003 to 2007, it was a period where we had 200 basis points or 2% increase over a multi year period, it slow climbed up, very very passive, very slow, 25 basis points at a time.  That’s what I think we are going into and actually real estate performed very well during that period, because it wasn’t a violent increase of rates and I think we are going to have that. 

 

So it really becomes an asset allocation decision.  If you have 30% of your net worth in real estate now, maybe it’s a wise idea to move it down to 20, because you have to weather the storm of rate increases, but they will be slow and steady in my view, so going to zero in real estate is not a good move, because it’s proven over many decades to be a great asset class, provides stability in portfolios and I am speaking now as an institutional investor and as an individual.  There is never a time in your life, you want to be zero in real estate.