Nothing could have prepared me for Billy’s phone call.
I’d just found out my business partner had taken out a $500,000 mortgage on a property in my name. And the mortgage hadn’t been paid for 6 months.
The property was called Ridgeview Center and was the third shopping plaza I’d constructed in a town near the college I had recently graduated from.
Newspaper clipping of Brad Thomas (right) showcasing the Ridgeview Center shopping plaza development to a city official
Billy was a friend of mine and his mother-in-law was the sole investor in Ridgeview Center. He was calling to ask about the dividend payments his mother-in-law had not been receiving.
Now prior to my business partner going rogue, we had built a $75 million portfolio with the help of “friends and family” investors. We were the literal talk of our towns, turning quite the pretty penny for everyone involved in short time.
This was the reason Billy’s mother-in-law had decided to invest with us in the first place.
And in one phone call, I dropped from hometown hero status to the duped business partner.
At my advice, Billy’s mother-in-law lawyered up and was able to recover every dollar spent.
I was not so fortunate. This incident, coupled with the Great Recession of 2008, wiped me out. It took me years to build back my portfolio and become a multimillionaire once again.
Here at Intelligent Income Daily, we don’t just share our success stories. We believe it’s important to share the setbacks, too. Because that’s where the lifelong lessons come from.
And it’s how we test our recommendations for flaws or potential pitfalls. Today, our investing strategy is laser-focused on steering you toward financial freedom with the best income plays.
With this particular setback, I learned a lesson I cannot stress enough: The importance of diversifying your income, even when one area of the market seems to be printing money.
And it seems to be coming full circle.
Right now, I’m seeing a dark cloud forming over my favorite sector of the market. And I want to examine it closely to discuss why even this sector isn’t the best place to store your entire nest egg.
I’ll also share the name of a company that has a much better chance of enduring this storm and boosting your portfolio along the way.
By educating yourself about various investments and spreading your capital among them, you can sleep well at night, knowing you’re protected against the unexpected.
Commercial Real Estate Fear Is in the Air
There’s always a risk in investing. I never want to make you think otherwise.
But you can reduce that risk immensely by diversifying your portfolio and ensuring the companies you invest in are quality ones that are doing the same.
That way, when things go bad, you have more than one opportunity to fall back on.
With all due respect to both my younger self and my friend’s mother-in-law… putting her entire nest egg into a single investment wasn’t wise. And allowing her to do so on my part was arrogant, at best.
So today, I want you to be aware of an actively forming real estate storm on the horizon…
Bloomberg recently reported that “[a]lmost $1.5 trillion of U.S. commercial real estate debt comes due for repayment before the end of 2025.”
To give you an idea of how significant this is, the commercial real estate market is about $20 trillion dollars.
And spooked by recent financial failures, many banks just aren’t lending. I’m getting daily texts and emails from developers asking me how to access capital.
So 7.5% of the entire commercial real estate market debt is coming due… with a credit crunch hitting the industry less than two years before the repayment deadline.
Hundreds of office properties are underwater right now, especially in unionized cities like Washington, D.C., New York, and San Francisco.
With reduced demand and higher interest rates, their valuations continue to crater.
Some property sectors could fall by as much as 50% from peak to trough.
For small commercial real estate businesses, this could be catastrophic… But larger companies will have a field day.
One CEO of a major mortgage real estate investment trust (REIT) just told me this upcoming storm will provide his company “terrific opportunities to pick up apartments that are 100% leased and recently renovated for peanuts.”
So if you’re currently heavily invested in commercial real estate, now is the time to ask the following questions:
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What percentage of my portfolio is invested in commercial real estate?
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Are the investments I have in commercial real estate quality companies with diversified portfolios?
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Is it likely these companies will survive the upcoming storm?
It’s always good to ask these questions before a crisis… rather than during one.
A Company That Can Thrive In This Storm
There’s one company I follow closely that passes these questions with flying colors. That’s how I know it can survive this storm and thrive.
Realty Income (O) is a net lease REIT that owns over 12,000 properties (in 50 U.S. states and Europe), which means the business model is extremely diversified. The company has been able to withstand multiple recessions and a global pandemic. And it has always delivered on its promise to pay its stakeholders dividends every month.
I wish I would’ve recommended shares in Realty Income to my friend’s mother-in-law instead of investing in the shopping center I just told you about. Imagine what her life would have been like to have dividend checks coming in every month.
(Source: Realty Income investor deck)
That’s why I’ve made Realty Income one of the companies in our Intelligent Income Investor SWAN Portfolio. We like it for its A-rated balance sheet, tremendous scale, and an increasing dividend 28 years in a row.
It’s a perfect example of the kinds of companies we want to hold right now.
And it’s not the only one. Our Intelligent Income Investor portfolio includes dozens of other resilient names just like this. And by diversifying your investments among them, not only will you earn income from the highest-quality dividend-paying companies the market has to offer… but you can protect yourself from market downturns or other unforeseeable setbacks.
Take it from me… The time to prepare is now. And many in the real estate sector will be caught off guard by the coming storm. But by arming yourself with names like Realty Income and others, you can profit from the sector instead.
Don’t be the duped investor, be the intelligent one.
To learn about the other recommendations in Intelligent Income Investor, click here.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily