Could investing in real estate income help you become a millionaire?

Too many investors see Wall Street as a get-rich-quick scheme, with things like meme stocks and skyrocketing IPOs getting way more attention than they deserve. If only it were that simple – but the downside of betting big on risky investments is losing big. It is far better to have a portfolio with many different risks so that you can safely build your wealth into the millionaire category over time. Real estate income (O -0.11%) could be a key part of this equation.

Spread your bets around

If you knew 100% that a stock was going to rise significantly, it would make sense to invest 100% of your portfolio in that stock. But there are no crystal balls on Wall Street – you have to weigh the risk of a stock going up against the risk of it going down. This is why betting everything on a single investment is not something most investors should do. It is far better to diversify your portfolio by spreading your bets across, say, around 25 stocks.

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Here’s the thing: Diversification doesn’t mean you have to have a portfolio full of security-focused investments. In fact, you should have riskier options in the mix along with lower risk names. The most stable companies allow you to take the greatest risks. Real estate income is exactly the kind of low-risk stock that can give you the comfort to take on more risk.

Slowly but surely, we succeed

Realty Income has a massive portfolio of approximately 11,000 single net leasehold properties. This means that it owns the assets, but its tenants are responsible for most of the operating costs of the properties they occupy. Any individual property has a higher risk because there is only one tenant. With many properties in a portfolio under this model, as Realty Income does, the portfolio risk of a property becoming vacant is mitigated. Today, a notable advantage of this model is that the most severe impact of inflation is felt by tenants because they have to pay rising maintenance costs, which Realty does not. Income.

The REIT’s portfolio is heavily skewed towards retail, which accounts for approximately 80% of rents. These types of properties are quite generic, so they are easy to vacate or sell if there is a tenant problem. The rest of the portfolio is non-retail, which is largely industrial and warehouse assets, but also includes a vineyard and very soon a casino. Nearly 10% of the company’s rents come from Europe, adding a touch of geographic diversification to the mix.

Meanwhile, Realty Income pays a monthly dividend that has been increased every year for over 25 consecutive years, making it a dividend aristocrat. The dividend has grown slowly, at an annualized rate of about 4.4% since 1994. This is lower than the current level of inflation, but it is actually higher than the long-term average of inflation, which is closer to 3%. Real estate income is the epitome of slow and steady. And yet, it still has excellent long-term performance numbers.

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For example, over the past 20 years, shares of Realty Income have risen just under 350%. That compares to a nearly 360% gain for the S&P 500, which is a pretty good relative performance for a boring investment. But wait, there’s more! A big part of Realty Income’s story is its dividend, so total return, which includes dividend reinvestment, is a more telling indicator of long-term performance. The REIT’s total return over the past two decades is around 1,200%, compared to a total return of around 575% for the S&P 500 Index. Slow and steady suddenly seems much more attractive.

A piece of millionaire history

To be fair, conservative investors know how attractive REITs are and often bid them high. However, this simply means that Realty Income has a lower cost of capital than its peers, giving it a head start when buying property. So while the dividend yield of around 4% is lower than what you can get elsewhere in the REIT industry, it might be worth paying for a quality dividend payer that has proven it can be a rock even during some of the worst storms in the market. This, in turn, means you can more easily own aggressive stocks which, in combination with Realty Income, can take you to seven-figure net worth.