You can make a lot of money by renting out real estate.

I’d say that’s the obvious statement of the century, except that it has been well-known for far longer than 100 years. Owning property and allowing others to utilize it for a fee dates back millennia.

Ancient Mesopotamia. Egypt. Greece. Rome.

They all did it because they all knew it worked.

That is to say, they all knew it could work… if they had the right land with the right facilities at the right time with the right tenants. If they didn’t, it could turn into a real loss. Maybe even a bankruptcy.

Of course, as I know from personal experience, even being a successful landlord can come with major headaches. Getting those monthly rent checks is great, but the typical trade-off is that you pay property taxes, insurance, and maintenance costs.

Plus, you have to deal with tenant issues. And while some tenants are great, others can be problematic. Exceptionally so.

But there is a way to have all the benefits of being a landlord – including regular payments – without the headaches.

Longtime readers will know where I’m going with this. But for newer readers, today we’ll take a closer look at the net-lease real estate space.

As you’ll see in a moment, these stocks carry a dividend yield of 6.2% on average. And they are, in my humble opinion, almost criminally undervalued.

If the recent market volatility makes you uneasy, read on…

It’s Always Something
Most mom-and-pop landlords handle the constant concerns of dealing directly with tenants their entire renting lives. But that’s because most mom-and-pop landlords supplement their income with those properties. They have main jobs as well, with just a property or two they loan out on the side.

Back in the 1980s, ‘90s and ‘00s, though, my entire business was real estate. That meant I was able to scale my operations from owning rentals to owning net-lease rentals.

And what a difference that made!

There are actually three types of “net” leases: single, double, and triple. A single-net lease means the tenant pays rent and some category of expenses, oftentimes property taxes. A double-net lease, for its part, adds on insurance premiums to the lessee’s list of responsibilities.

Then there’s a triple-net agreement, the gold standard of “landlording.” That’s when the tenant pays rent, property taxes, insurance premiums, and maintenance costs.

The owner just pretty much sits back and collects rent. And, in certain corporate landlords’ cases, shareholders can do the same.

The Net-Lease System on Display
By “certain corporate landlords,” I of course mean real estate investment trusts, or REITs.

These businesses own dozens, hundreds, or even thousands of properties. Sometimes they’re apartments. Sometimes they’re shopping centers. Sometimes they’re data centers, storage units, cell towers, or nursing homes.

And sometimes they’re free-standing buildings with room for just one tenant. Maybe it’s a Starbucks or a 7-Eleven or a CVS, AutoZone, McDonald’s, or Tractor Supply. Perhaps it’s a car wash or gas station.

Regardless, it’s the type of property you probably pass by on your way to work or while running errands around town.

The companies that rent these stand-alone facilities almost always do so under triple-net contracts. That’s why there’s an entire REIT category dedicated to them, known as net-lease.

It’s a sizable sector in and of itself. But when you combine it with non-REIT landlords who do the same, it becomes absolutely massive.

The total global addressable net-lease market sits at over $14 trillion. So even a small cut of that pie can make a net-lease landlord a nice sum of money.

I remember my first venture into this rental category. It was an Advance Auto Parts store I built in South Carolina. And it worked out so well, I was hooked.

Over the course of the next decade, I went on to rent space to chains like Dollar General, Sherwin-Williams, Alltel, Blockbuster Video, PetSmart, Barnes & Noble, Goodyear, Payless ShoeSource, Walgreens, IHOP, Waffle House, Red Lobster, and Outback Steakhouse.

Those were the easiest rentals I ever dealt with. Though that does beg the question: Why in the world would a right-minded tenant agree to such conditions?

It’s actually quite simple though: a combination of cheaper rent and autonomy. Businesses that pay triple-net rents on single-store properties get to make up their own rules.

They can open when they want to open, close when they want to close, and often even make property alterations as they see fit – especially when they sign multidecade leases.

For high-growth companies, it makes more sense to scale operations using OLM (other landlord’s money) because it’s a cheaper cost of capital compared to investing into the core business that earns better returns on invested capital (ROIC).

So it can be extremely beneficial for both parties, including national and global corporations that offer some of the most dependable rent checks around.

Enter the World of REIT Investing
Back 15 to 35 years ago, I would sell some of my properties to net-lease REITs such as:

  • Realty Income (O)
  • Agree Realty (ADC)
  • NNN REIT (NNN)
  • EPR Properties (EPR)

There weren’t many at the time, but that list has since mushroomed. Today, there are 26 operating in the U.S. and Canada, with a combined market capitalization of just under $159 billion.

Source: Wide Moat Research

Admittedly, that’s less than there were even five years ago. But that’s because some of these REITs have bought each other out.

Realty Income, for one – the largest in the space – purchased Vereit in 2021 and then Spirit Realty in 2024. Global Net Lease (GNL) acquired The Necessity Retail REIT IN 2023. And VICI Properties (VIVI), a gaming-focused net-lease REIT, bought up competitor MGM Growth Properties in 2022.

I expect more of that from here. Given their scale and cost of capital advantages, Realty Income, VICI Properties, W.P. Carey (WPC), and Agree Realty are especially poised for healthy expansion.

They also appear well-positioned in the current environment thanks to their investment-grade credit and long-term leases with contractual escalators. Strong balance sheets – including low leverage and low risk from near-term debt maturities – tend to benefit the most regardless if when capital markets tighten.

Source: Wide Moat Research

I should also point out how net-lease REITs are one of the highest-yielding REIT sectors. Their average dividend yield is 6.2%.

Just be sure not to chase yield alone. Pay very close attention to their payout ratios – how much they’re paying out versus their net income – and their historical dividend performance before you act.

Source: Wide Moat Research

Valuation is also critical to the investing process. But that’s largely not a problem right now.

Early in the year, the larger REIT world was up 5.2%. That meant it was actually outperforming the S&P 500 by 570 basis points.

However, more recent economic uncertainty is weighing them down, leaving many net-lease plays trading cheaply. The average price to funds from operations multiple in the sector is now 11.5 times.

That’s why I’m pointing out Realty Income, VICI Properties, and Agree Realty for anyone looking for a net-lease dividend bump. They’re all excellent companies well worth checking out.

Regards,

Brad Thomas

Former Wall Street Insider Calls This His Biggest Gold Play Yet [sponsor]
Karim Rahemtulla, the trader behind a 400% gain in 24-months on Rolls-Royce, has uncovered another potential multi-bagger. This under-$20 stock gives you exposure to over 1-oz of gold with the lowest production costs in the industry. And an upcoming announcement could send this stock soaring. Get Karim's urgent briefin - click here now.

Source: Wide Moat Research