Why REITs Are Far Better Investments Than Treasuries

Core Viewpoint - Many investors are shifting from REITs to Treasuries due to higher yields, but this perspective may overlook the long-term benefits of REITs, which offer better cash flow yields, inflation protection, and potential for growth [2][10]. Group 1: Cash Flow Yield - Treasuries offer lower cash flow yields compared to REITs, with REITs currently providing an average cash flow yield of 8%, while Treasuries yield between 4% and 5% [2][9]. - REITs retain a portion of their cash flow for growth, leading to lower dividend yields but higher overall returns for investors over time [2][3]. - A $100,000 investment at an 8$466,095, compared to $265,329 at a 5% yield, highlighting the significant difference in potential returns [2][3]. Group 2: Inflation Protection - Treasuries do not provide protection against inflation, with real yields after adjusting for the latest inflation rate of 3.3% resulting in only a ~1% real after-tax return [3][4]. - REITs, owning real assets, benefit from inflation as construction costs rise, leading to increased rent growth and cash flows [5][6]. - Assuming a 3% annual rent growth, REITs could achieve total annual returns of 11%, significantly higher than Treasuries [5][6]. Group 3: Reinvestment Risk - Interest rates are expected to decrease, which could lead to lower yields on Treasuries as they need to be rolled over at lower rates [7][8]. - As interest rates decline, REITs are likely to recover in value, presenting a missed opportunity for Treasury investors who may face reinvestment risk [8][10]. - REITs are currently trading at their lowest valuations in over a decade, making them an attractive investment option compared to Treasuries [10].