REITs Have Under Performed for 25 Years. Is the Next Decade Different?

Summary

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Podcast Summary

Podcast: BiggerPockets Money Podcast
Episode Title: REITs Have Under Performed for 25 Years. Is the Next Decade Different?
Date: August 11, 2026
Host: Scott Trench (Solo, without Mindy Jensen)
Guest: Jussi (UC) Escola, REIT expert, founder of High Yield Landlord, author of "The REIT Advantage"
Audience: Intermediate to advanced FIRE (Financial Independence, Retire Early) enthusiasts and serious personal finance strategists

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Main Theme & Purpose

This episode explores the landscape of Real Estate Investment Trusts (REITs), reflecting on their underperformance compared to other asset classes (notably the S&P 500) over the past 20 years. Scott Trench and guest Jussi Escola dive deep into why this underperformance occurred, the sharp differences across REIT sectors, the critical importance of management structure, and whether the next decade looks more promising for REIT investors. They also provide actionable frameworks for evaluating REITs and discuss which property sectors currently look attractive.

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Key Discussion Points & Insights

1. REIT Performance vs. Broader Markets

• Historical Context: REITs, especially broad indexes like VNQ, have been largely flat or underperformed relative to the S&P 500 over the past 10-20 years. Most of the returns for REITs came through distributions rather than price appreciation.
  • [01:12] Scott: "REITs and rentals have been pretty flat, significantly underperforming the S&P 500... We thought, I think there was a good case to be made. Hey, REITs are probably at a relative low...and they still haven't gone anywhere."
• Recent Bear Market: The REIT bear market started in early 2022 due to surging interest rates, but the sector is now gradually recovering (55% avg. total return since late 2023).
• Long-Term Perspective: Over a 50+ year run, REITs have produced returns comparable to the S&P 500, but the last 20 years have been hurt by black swan events: the Great Financial Crisis, the pandemic, and rapid interest rate hikes.
  • [02:51] Jussi: "Over the past 50+ years... REITs have actually earned very comparable returns to the broader market."

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2. Valuing REITs – NAV Discounts and Active Management

• Net Asset Value (NAV) Discount: Many REITs are currently trading at 20-50% discounts to their NAV, making them acquisition targets for private equity (e.g., Blackstone, Brookfield, KKR), who see compelling value.
  • [03:06] Jussi: “Over the long run, historically REITs have typically traded at a small premium to the net asset value... However, today ... you have a lot of REITs trading at 20, 30, up to 50% discount...”
• Valuation Complexity: Determining NAV is challenging, especially for REITs with large, heterogenous portfolios not marked to market (i.e., not regularly re-appraised), creating estimation uncertainty.
  • [05:43] Jussi: “...it can be very tricky when a REIT owns, let's say, 100 plus properties all over the place... But even a good estimate lets you tell if a REIT is undervalued or not.”
• Active vs. Passive: Unlike most market sectors, studies show active management does outperform in REITs after fees—primarily by avoiding “bad apples” (poor management, over-leveraged, externally managed companies).
  • [14:29] Jussi: “There's a lot of bad apples in the REIT sector. ... If you're able to weed those out already, the average performance...will be a lot better.”

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3. Management Structures – The #1 Factor in REIT Returns

• Internal vs. External Management:
  • Internally managed REITs outperform due to better alignment with shareholders and incentives tied to performance, scalability, and lower conflicts of interest.
  • Externally managed REITs tend to underperform due to fee structures favoring the manager, conflicts of interest, and poor strategic alignment.
  • [18:46] Jussi: “Internally managed REITs...proven to do a much better job at aligning the interest, but also leading to economies of scale.”
• Private vs. Public Real Estate Parallels:
  • Self-management and close operator involvement lead to outperformance (applies in both private landlord and REIT contexts).
  • [21:16] Jussi: “Going even beyond that, the management of [a good REIT] will be internal and they will have significant skin in the game themselves."

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4. Macro versus Micro: Why Averages Obscure Opportunities

• Sector Dispersion: REIT index funds/ETFs (like VNQ) house economically diverse companies—returns of specialized, high-performing REITs (e.g., E-commerce warehouse, blue-chip multifamily) are masked by weak sectors (e.g., offices, over-leveraged or mismanaged entities).
• Active Selection Required: Succeeding in REITs requires in-depth analysis of management, capital structure, property type, region, and macroeconomic risks—not just “buying the sector.”
  • [24:25] Jussi: “It's not an easy category to invest in, which is why I think...REITs remain a bit of this obscure sector...If you're willing to do the work, I think that there is some very attractive opportunities.”

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5. Deep Dives on Property Sectors

Office REITs

• Outlook: The sector is extremely bifurcated—Class A (high-quality, well-located, amenity-rich) may benefit from the “flight to quality,” while generic, older buildings face existential risks (little chance to recover/demand).
  • [28:11] Jussi: “The gap is getting enormous. ... In many ways the demise of these lower-quality buildings is going to benefit these higher-quality buildings as tenants move out.”
• Risks: Potential for refashioned competition from lower quality buildings taken by new owners at low bases; AI’s labor disruption could be a double-edged sword.
• Speculative Bets: Some see potential asymmetry (“option-like" returns) in deeply discounted office plays.

Multifamily / Apartments

• Slower Recovery: Oversupply and weak demand continue to suppress rents, with expectations for a turnaround (rent growth) continually getting pushed out (from 2025 now potentially to 2028).
  • [33:20] Jussi: “Supply is significant and just not enough demand growth...the market has remained surprisingly weak...”
• Selectivity: Opportunities exist where cap rate spreads are substantial and management is disciplined (e.g., shedding assets, repurchasing shares at discounts).

Data Centers

• Fast Growth, High Uncertainty:
  • Massive tailwinds from AI have driven data center REITs, but concerns about long-term obsolescence/terminal value, since tech change is rapid and assets may depreciate more quickly than traditional real estate.
  • [41:28] Jussi: “I don't really view [data centers] as traditional real estate investments... the terminal value of these buildings remains very uncertain.”
  • [44:16] Jussi: “If the terminal value is good, then [data centers are] an amazing investment. But if you feel that's a bit of a coin flip...that’s the reason that has kept me away.”

Service-Oriented Retail & Cell Towers

• Retail (Strip Centers):
  • Under-built through years of pessimism, now seeing strong rent/occupancy growth.
    • [45:36] Jussi: “Retail is under supplied today... Occupancy rates are growing, rents are growing, same property NOI growth... despite that, these REITs often don't trade at [high] valuations.”
• Cell Tower REITs:
  • Overlooked, but positioned to benefit from the AI/data boom and increasing data consumption.
    • [46:36] Jussi: “I prefer to invest in cell tower REITs...I expect this to, over time, lead to higher rental income...”

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6. Capital Structure & Risk

• Leverage Patterns:
  • Historically, greed-driven, highly leveraged REITs and over-complicated capital structures have led to underperformance or blow-ups. More recent cycles have seen deleveraging, making current REITs (on average 30–40% LTV) more conservative than most private syndications.
    • [38:29] Jussi: “In the REIT sector we've seen that REITs with lower leverage have delivered better returns...most REITs have learned their lesson.”
• Management & Black Swans: Survivors and outperformers are those with prudent management, conservative leverage, and ability to buy distressed assets during downturns.

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7. Practical Challenges for Retail Investors

• REIT Investing is Not Passive:
  • Success requires real work: reading management filings, evaluating property mix, and understanding incentives. There’s no “easy button” for REIT investing—mirroring the need for due diligence in private real estate.
    • [24:25] Jussi: “It can be a full-time job if you want to do it right. It's not an easy way of investing, but if you do it right, it can be very rewarding.”

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8. Final Takeaways

• You must be selective and educated.
  • "There’s no magic. You can buy an ETF that represents everything… but if you want to earn good returns, probably you need to be a bit more selective. And again, you need to spend some time educating yourself, doing some research..." [51:41]
• Management and internal alignment matter—everywhere.
  • "Management is really the number one thing whether you’re in the private side of the real estate market or the public side in the REIT sector. It’s always the first thing I start with." [22:52]
• Market Opportunity Exists, But Not for the Lazy.
  • REITs—especially those trading at significant NAV discounts with great management—offer potential, but require work and are subject to unique sector and macro risks.

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Notable Quotes & Memorable Moments

• [01:33] Jussi Escola: “REITs have gone through a multi-year bear market... But since late 2023, REITs have actually begun their recovery... about 55% [total return].”
• [14:29] Jussi Escola: "...The REIT sector is one of the very few ones today in which active management still beats particularly passive even after fees."
• [21:16] Jussi Escola: "The management ... will be internal and they will have significant skin in the game themselves."
• [24:25] Jussi Escola: "It’s not an easy category to invest in, which is why I think... REITs remain a bit of this obscure sector that’s right in between stocks and real estate."
• [41:28] Jussi Escola: "...the terminal value of these [data centers] remains very uncertain. ... Because I’m not a technology expert, I’m not able to answer the question of what the probability is of this happening."
• [45:36] Jussi Escola: "I like service-oriented retail a lot right now ... rents are growing ... these REITs often don't trade at valuations that are that different from multifamily REITs ..."
• [51:41] Jussi Escola: "You can buy an ETF that represents everything... but if you want to earn good returns, probably you need to be a bit more selective. And again, you need to spend some time educating yourself, doing some research."

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Timestamps for Key Segments

• [01:12-02:51] — Overview of REIT underperformance & historical returns
• [03:06-07:58] — Valuation metrics: NAV, market discounts, buyout trends, valuation complexities
• [12:22-16:41] — Macro REIT performance, sector dispersion, passive vs. active, and multifamily discussion
• [18:19-23:24] — The critical role of management structure and alignment
• [26:18-31:06] — Deep dive: office REITs, risks/opportunities
• [33:20-36:22] — Multifamily/apartment REIT cyclical pain and opportunities
• [41:07-45:01] — Data center REITs: AI narrative, risks, and why Jussi is cautious
• [45:36-47:43] — Most attractive sectors: service-oriented retail and cell towers
• [50:45-54:44] — Final summaries, resources, and Jussi’s perspective on public vs. private real estate

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Conclusion & Recommendations

For Listeners & FIRE Investors:
REITs may be at an inflection point, trading at NAV discounts not seen in years. However, substantial due diligence is mandatory—ETF/index approaches have been diluted by poor performers. Investors should focus on internal management alignment, prudent capital structure, and sector positioning, or look to expert-managed vehicles or rigorous research for outperformance. Jussi Escola’s newsletter (High Yield Landlord) and book ("The REIT Advantage") are suggested resources for those willing to approach REIT investing as a serious, research-intensive enterprise.

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Find more from Jussi Escola:

• High Yield Landlord Substack
• Book: "The REIT Advantage"

Referenced previous BP Money interview: Search “UC Escola BiggerPockets Money” for their last debate on REITs vs. private real estate.

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This summary should equip FIRE-oriented investors and personal finance strategists with a balanced, insightful view on the nuances, hazards, and potential of REIT investing in 2026 and beyond.

Transcript

[Scott Trench]

3 years ago we had Jussi Escola,

[Brandon Turner]

REIT expert from High Yield landlord, talk about REITs.

[Scott Trench]

And we had a lively debate here in the BiggerPockets Money podcast about real

[Brandon Turner]

estate investment trusts versus rentals.

[Scott Trench]

Since then, both real estate investment trusts and rentals have been pretty flat, significantly underperforming the S&P 500 or other major market indexes. Yousi is back to talk with me

[Brandon Turner]

about the landscape for REITs, what's happened,

[Scott Trench]

his wins and losses and where he thinks the opportunities are going forward.

[Sponsor/Ad Voice]

Foreign.

[Scott Trench]

Hello and welcome to the BiggerPockets Money podcast without Mindy Jensen. I am Scott Trench, your real estate

[Brandon Turner]

investment trustee solo host today.

[Scott Trench]

I am very excited to be joined

[Brandon Turner]

today on the Bigger Pockets Money podcast by UC Escola for this conversation.

[Scott Trench]

Welcome back to the Bigger Pockets Money podcast. Uc, how's it going?

[Jussi Escola]

Very good. Thank you for having me, Scott. And as I was just telling you, the big change from last time we talked is your mustache. It's very nice. I like it a lot.

[Scott Trench]

I'm very glad you noticed the mustache.

[Jussi Escola]

Mustache.

[Scott Trench]

So. Or the mustache. Yes. Wonderful.

[Brandon Turner]

So.

[Scott Trench]

Well, to start things off for people who haven't listened, I want to actually pop a big question here, which is we Talked maybe about two, three years ago about REITs and if you just look at like a broad REIT index like vnq, it hasn't really gone anywhere.

[Brandon Turner]

Right?

[Scott Trench]

I mean, and that's big news because the rest of the markets, you know, gone and ripped. Can you maybe start us off there and tell us what's happened here? We thought, I think there was a good case to be made. Hey, REITs are probably at a relative low. They haven't gone anywhere for a while and they still haven't gone anywhere.

[Brandon Turner]

So what's going on?

[Jussi Escola]

So, so it depends obviously on when you start your measurement period. But generally speaking, REITs have gone through a multi year bear market. This bear market began in early 2022 with the surge in interest rates. You know, this hasn't fundamentally impacted REITs quite that much. The average loan to value in the REIT sector is only 35%. So despite interest expense rising somewhat, the impact hasn't been significant as REITs have also benefited from the high inflation in rents. And so because of that, cash flows and dividends have kept on growing even as REIT share prices drop to lower levels. But since late 2023, REITs have actually begun their recovery from this bear markets. Their total returns of REITs on average since late 2023 is about 55%. So it's nothing exceptional, but they've been gradually recovering from this bear market. But you're correct to point out that REITs have significantly underperformed the S&P 500 over the past five years or so. And this is unusual for REITs. You know, over the past 50 plus years, if you include this recent bear market, REITs have actually earned very comparable returns to the broader market over the long run. You know, I've been posting a lot of content online about this opportunity. I think that with a lot of REITs trading at large discounts relative to the value of the real estate they own, they are today presenting a very compelling opportunity, in my opinion.

[Brandon Turner]

Let's start there.

[Scott Trench]

Why is this a compelling opportunity? And talk to me about pricing of these REITs. Are we pricing it on a basis, you know, on price to earnings or in the REIT world, price to flow funds from operations or adjusted funds from operations? How do you think about this? And can you define some of these terms?

[Jussi Escola]

Yeah, so, I mean, there's many ways to measure REIT valuations, but basically over the long run, historically REITs have typically traded at a small premium to the net asset value on average during most times. And this makes sense when you think of it because REITs essentially give you exposure to real estate, but with the additional benefits of liquidity, diversification, limited liability, professional management, economies of scale, all these things that has value. And so typically REIT should trade at the premium to the net asset value on average. However, today, following this, this bear market, with reef share prices dropping quite significantly now you have a lot of REITs trading at 2030, up to 50% discount related to the value of the real estate, net of debt. So that's one way to measure the valuations of REITs is that, you know, if REIT might own 1 billion worth of real estate, net of debt, and yet its market cap might be just half of that. So that's one way to measure the valuation. And that's a reason also, by the way, why there's been so many REIT buyouts lately. We've had, I think, 10 plus buyouts this year alone. This M and A activity has really accelerated this year with major private equity firms like Blackstone, Brookfield, KKR Blue O and many others going after REITs and paying significant premiums, often 20, 30% to acquire the REITs. And they're still getting a good deal. And so this is my favorite way of measuring the valuations of the REITs is to compare their net asset value to their current share price. That's how I like to measure it. As you know, I'm thinking of REITs as real estate investments and I'm always comparing in which I'm getting the best value. Do I get a better value for buying REITs or buying private real estate?

[Scott Trench]

You know, because of your conversation, I dabbled in REIT analysis for a little bit here. I know, you know, I didn't put any real money into it, but I looked at REITs and I was like, I understand this net asset value argument, but in order for me to concoct a net asset value opinion, I have to understand every building in each REIT's portfolio and then market to market. And these things are not marked to market. Right. There's not a lot of liquidity in buying or selling office buildings in Dallas, Texas in class A right now. How do you value it? I mean, you can put a price to square foot, but you're going to get a range that's super high. So I think that's the challenge here, is trading at a discount to net asset value. Are they? I don't know. I think that that's where it is. Certainly KKR and Blackstone apparently think so, at least in some cases with these acquisitions. But walk us through how you would actually make the argument or defend the stance that these are trading at a discount to net asset value if the assets were marked to market fairly. In many of these REITs, it's a

[Jussi Escola]

lot of work to calculate these net asset values. The first thing to note here is that public listed REITs, which is what I focus on for the most part, they are not typically releasing an estimate of the net asset value. They will, according to us gaap, record the value of their assets on the balance sheet as historic costs minus the accumulated depreciation. So if you're just looking at balance sheet figures, that's not going to get you far. Those are not reflected at all of the true market value of the properties. Instead, you'll have to calculate them yourself. And as you noted, it can be very tricky when a REIT owns, let's say 100 plus properties all over the place. Sometimes they are not really specialized. They own all kinds of properties. That makes it very difficult. But the good thing is that this doesn't have to be an exact science. You will never manage to determine the exact net asset value to the exact number. But even if you have just a good estimate, you can often tell if a REIT is undervalued or not. You will not know if it's undervalued. By 17%. But you'll know that perhaps the range might be 15 to 25% discount. But yeah, it's not an exact science. But you know, there are a lot of REITs, especially the smaller ones that are very specialized in, let's say, let's say the example of BSR reit, which is an apartment REIT that I like to talk about that focuses on the Texas triangle. It owns these garden style class A new build apartment communities in cities like Dallas, Austin and Houston.

[Scott Trench]

Real tough time to be owning apartment buildings in Dallas, Texas. Maybe good time to be buying, I don't know. But tough time to be owning, right?

[Jussi Escola]

Oversupplied markets for sure that are going through a rough time. But my point here is that despite them owning a portfolio of a lot of assets, you can, with a reasonable amount of certainty know a good cap rate range for this type of assets in these markets. And then you can apply that to the forward NOI of the company and you can deduct the debt and you'll get to an estimate of the net asset value. And you know, today the shares of the REIT are trading at an implied cap rate about 6.5%. But in the private market, transactions are happening at closer to a 5 1/2% cap rate for these type of assets. And so you'll know that there is likely some type of discount even without knowing exactly how much it is.

[Brandon Turner]

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[Scott Trench]

Let me zoom out here because you have an opinion on how like hundreds of REITs, right? You know, and, and you would put real money behind that opinion and make money on those opinions. But if I, if I zoom out and I think like from a macro perspective right And I look at just like vnq, right, Vanguard's REIT index, right? Here's what stands out, right? This is that dip it you were talking about in 2023. I'm sharing my screen here and I'm showing that the VNQ REIT reached a Low Point in October 2023 of $72 and today is trading at around $99. There's a real gain since that particular low point. But the average for 2023 was closer to this like 80 to 85 price target. And that price target was actually last seen all the way back in 2007 and then again around kind of 2014. So it's arguable that this REIT hasn't gone anywhere in 20 years, like the index for REITs, frankly, besides the cash flow distribution, and certainly maybe even more arguable that it hasn't gone really anywhere meaningful in about 12 years. 11, 12 years. Like how do I think about that as an investor at this point? Does that mean it's going to rip and start roaring over the next 20 years? Or was there different pieces of the REIT sector that drove all the returns? If you were concentrated in those, how do I think about this from like a bird's eye view?

[Jussi Escola]

There are a few important points to consider here. The first one is that while REITs make up a large portion of BNQ, this actually isn't a pure play REIT ETF, it's a real estate ETF. And so this means it also includes a lot of home builders, it includes real estate development companies, some brokers. And so it's not a fully REIT etf. And a lot of these businesses have had a particularly rough time, even rougher than REITs, following the great financial crisis following the pandemic. So it's not pure play on REITs. But even then you're correct. REITs had a very rough 20 year period. They've suffered several black swans in this time period. Starting with the great financial crisis. We had the surge in interest rates, we had the pandemic. And so no, you're correct. The last 20 years, especially if you include the last years and you start before the great financial crisis crash, it's been a very poor time period for REITs. What I would say here though is that if you expand this time period to 50 plus years, which is the longest existing time period for REITs, back then BNQ wasn't even available. But if you look at the REIT indexes provided by Nareit, which is the representative body of The REIT sector, their returns have been very competitive over the long run. Even slightly outperforming the S&P 500 over the last 53 year period, I believe in ending in 2023. So before this, you know, a lot of this value was lost in this recent bear market. But yes, no, you're correct. Valuations today are low, market sentiment is low and that's impacting the performance of REITs a lot. If you look even over until the last 20 years.

[Scott Trench]

Why is that though? Because, you know, I just take like a single family rental and like you held that for the last 20 years, things are going well, right? Like I made a lot of money, you know, even if I had some rocky roads or even if I had the nightmare tenant, you know, two years out of those 20 years and had to do the big, the big hassle or whatever and was slow at it, I still doubled my money easily. Unlevered, right. You know, maybe tripled it. Unlevered and then you add leverage and it just goes through the roof. You know, putting the S&P 500, I did very well. Why are the REITs in housing? Let's just segregate into that category alone. Why is that not ripping?

[Jussi Escola]

As you mentioned here, there's a lot of different categories of REITs and I think that, you know what's hurting the averages, these benchmarks in the REIT sector a lot is the fact that there are all kinds of REITs and the dispersion of returns is really big. You might have an industrial REIT focusing on E commerce warehouses that shareholder friendly, that's done extremely well over the long run, delivering 15% plus annual returns over the past decades. Escroop Properties is a good example of that. But then at the same time you might have an over leveraged, poorly managed office REIT with significant companies of interest that might have gone bankrupt in the same time period or lost significant value. And so you take the average of the two and yes, your returns are not great, but if you're able to select that good reit, you would have actually earned pretty good returns. So you know, there are studies that show this actually that the REIT sector is one of the very few ones today in which active management still beats particularly passive even after fees. And that's quite rare today. You know, there's a lot of studies that show that's nearly impossible these days for active managers to outperform the SAP 500 or a lot of the major market indexes. But in the REIT sector it's not the case. And I think it's simply because there's lot of bad apples in the REIT sector. Companies that are conflicted, that have poor management over leverage on troubled assets that exist, you know, primarily to enrich their managers. If you're able to weed those out already, the average performance of that chart will be a lot better. More specifically, going now into the residential space, which you mentioned the last three years or so, the aftermath of the pandemic, a lot of these REITs have suffered a lot because of oversupply. We mentioned BSR, it performed really well during the pandemic. Obviously it's even trading at a premium to its net asset value. Still, in early 2022 it delivered great returns. But then their market sentiment took a particularly big hit because it wasn't just rising interest rates, but was also the oversupply leading to stagnating or even slightly declining rents. And so as a result, today you even have those blue chip A rated multifamily REITs like Camden Property Trust or Mid America Apartment Communities trading at large discounts to the net asset value. It's been one of the REIT sectors that has actually suffered the most in this bear market.

[Scott Trench]

This is really interesting because that was my big question around vnq. And thank you for the clarification that it's not just REITs that are being housed in VNQ. But, but even if you did have a perfectly set up REIT index, the story would be similar, maybe a little bit different, but, but it would be similar that it just hasn't gone anywhere. And so your answer is active management actually is you have to then begin, go back to skilled management. Oh, I can hear a bogle head screaming at their earbuds right now that active management doesn't work. So can you explain this, you know, from the theoretical or philosophical standpoint and then give us an example and practice

[Brandon Turner]

of what that means?

[Jussi Escola]

Yeah, I mean There are 200 plus REITs in the US, there are thousand plus worldwide today. And the basic concept is that, you know, if there are 200 REITs in the US, not all of them are worth buying probably. And I think that you can start with the management. There are two management structures in the REIT sector. You can REIT can be externally managed or internally managed. With the external management structure, the management is outsourced to an outside company that takes care of the management in exchange of fee income. And this management structure over the long run has proven to lead to much greater conflicts of interest, lower economies of scale and as a result of this, all the internally managed REITs have outperformed very significantly the externally managed REITs of the long run. Even then, there are still a lot of externally managed REITs that exist today and they are part of these ETFs. By simply avoiding these externally managed REITs. Of course, there are some exceptions in the mix that likely are quite attractive and worth buying, but by Simply avoiding these REITs, you could already do better on average. So you're basically looking at fundamental factors that historically and likely in the future are likely to lead to better returns and you'll, you know, build a more concentrated portfolio.

[Scott Trench]

I want to chime in here because I could hear, you know, everyone who's a landlord who listens to biggerpockets is like, well, that makes perfect sense to me, right? Because, you know, I imagine that returns for a self managing landlord in the single family or duplex space over 20 or 30 years is very different from the returns from somebody who has outsourced third party property management in many cases as well. That observation doesn't take much for me to believe, even before I see the data, what you just said there.

[Jussi Escola]

Yeah. And the internally managed REITs, on the other hand, that's a structure that has proven to do a much better job at aligning the interest, but also leading to economies of scale. Because what this means is that the management is hired as employees of the REIT and their compensation will not be a fee structure with like, let's say, 1% of assets under management and then some incentive fees, which doesn't scale. That means that the manager is simply keeping the economies of scale for themselves in the form of higher fees and higher margins. With the internal management structure, they are simply employees with the compensation that's typically tied to some key performance indicators that reflect shareholder value creation and so much better alignment of interest and better economies of scale. And so naturally it leads to better returns. If you give the right incentives to people, you'll have better outcomes.

[Scott Trench]

Thank you for saying this, and it's just fascinating. I don't know, I've never had somebody actually make this assertion on the podcast. I can't defend what you're saying, but I'm taking a face value for now. But like at bigger pockets, right?

[Brandon Turner]

You had some stories, they exist of

[Scott Trench]

people who bought a duplex, moved into it, literally lived in it, and self managed it and failed. That can happen, but the overwhelming sentiment from this type of investing is positive financial outcome over the long run. Right. You can lose, but it's relatively more difficult to lose because you're able to just control everything there. You see the problems, you can react instantly, you're on site and then from there. I heard a lot of stories about people building out of state long distance rental property portfolios. I don't know how those are turning out, but I've heard a lot of horror stories in that category. I've heard fewer horror stories from people who bought a bunch of properties in their area and self managed them right on that scale in the syndication space. The same story repeats, right? Dude in rural Cincinnati who buys the same vanilla type of apartment for 20 years seems to be doing just fine as far as I can tell. Dude who bought 30 different asset classes across seven geographies and different types of locations and lived in yet another geography is not doing so good and things are going very poorly. This story repeats across all real estate, as far as I can tell, as a rule and not as a hard rule where it's, it's perfectly strict, but without too many deviations across the entire value chain. And so I have no trouble now coming back to if I'm investing in BSR reit, which you like, I'm going to assume BSR reit, generally speaking is concentrated in one or a small handful of geographies, generally speaking, has staff on site in those geographies and generally speaking employs that staff to actually manage the assets over the entire hold period. Is that the right way to infer what I'm grasping from the argument you're making?

[Jussi Escola]

Going even beyond that? The management of BSR REIT will be internal and they will have significant skin in the game themselves. They own a large chunk of the equity, which will then do a good job, you know, at incentivizing them in trying to unlock this value. And a good example of that is last year they sold a third of their portfolio to another big REIT called Avalon Bay, just to try to prove to the market that, look, our assets are more valuable than what we're getting credit for. They sold these assets at a roughly 5% cap rate and they then use this cash to buy back a lot of shares at a big discount to create additional value for shareholders. A conflicted management would typically do the opposite. It would want to grow the size of the pie to justify higher salaries and higher fees. They are doing the opposite. They are scaling down operations to try to unlock value. These are just one example, but I completely agree with what you're saying here. And management is really the number one thing, whether you're in the private side of the real estate Market or the public side. In the REIT sector. It's always the first thing I start with because at the end of the day, real estate is a fairly low margin, low barriers to entry industry. There's a lot of bad actors in it. Let's say you're analyzing REITs. If you cannot be comfortable with the management being well aligned with you, the rest of the story really is irrelevant. They might own the best assets, have the strongest balance sheet, a very low valuation, but if the management is not well aligned, is conflicted, you're still likely going to face poor returns over the long run. They'll do a lot of stupid things like raise equity at dilutive prices just to grow the size of the portfolio to justify how your salaries and, and so then you have a chart like you have with VNQ where it doesn't go anywhere and then the opposite, if you have a reit. Like I mentioned earlier, egroup Properties, a very successful industrial REIT, is done exceptionally well over the long run. Their managers own a large stake of the REIT themselves, they think like real investors, and they're constantly following a unique strategy of developing the real estate themselves, earning initial yields far superior than what they could get by buying stabilized properties in the private market. So yeah, management is the most important thing in my opinion. What are you in the private real estate or buying REITs?

[Scott Trench]

I come back to, you know, I'm a long term investor and I'm debating, you know, where I want to allocate my capital and bigger pockets of money. So maybe I have a rental or two already. So I have real estate exposure in my financial portfolio in addition to my house. I've got, you know, some, some stock investments, maybe, you know, S&P 500 or market index funds. And why should I add REITs now if I can't passively allocate to the REIT based on what you're saying here, because of the exposure here. And I've either got to form an opinion about the net asset value either by constructing a forward estimate of bunch of operations unlevered and then, you know, putting the debt back in, or by actually valuing each building separately and providing an opinion of value. And then I've also got to figure out if the fund manages their own assets all or in part. And there's no checkbox as far as I can tell, next to the REIT that says we manage our own fund here. I've actually got to go in and read stuff or get an opinion from certain other parties. So this seems like A lot of work to invest in the REIT sector successfully for sure.

[Jussi Escola]

Like it's not an easy category to invest in, which is why I think, you know, to this day REITs remain a bit of this obscure sector that's right in between stocks and real estate. And you know, real estate investors don't really trust the stock market, often where stock market investors don't understand real estate. And it is definitely a trickier sector to invest in. But if you're willing to do the work, I think that there is some very attractive opportunities. And we see these big private equity players that are very highly sophisticated, they are certainly doing the work and investing billions of capital right now in REITs. Because us, they essentially allow you to buy real estate at a steep discount to its net asset value. And historically, whenever they've traded at such large discounts, eventually they have recovered and richly rewarded investors. There was Janus and Henderson, which is a big investment firm. Come out with an investment study. This is already a few years back, but this study showed that historically when REITs have traded at a 28% discount, you NAV or more, they have on average then in the following three years nearly doubled your money. And obviously this is historical and it's an average doesn't mean that this is going to happen over the coming years. I think the discount to NAV is actually a bit smaller today on average as well. But the point is that historically when you've gotten to buy REITs at a big discount, you've got into a pretty good returns over the coming years. But yes, it is work to select those REITs and you may not participate in those returns. If you just buy something like the VNQ or perhaps your returns will at least get partially diluted by some of these REITs that are poorly managed or on troubled assets, like some office buildings that are facing oversupply or some over leveraged REITs that are really feeling the pain of rising interest expense. So yeah, it is just like private real estate is time consuming. You have to, you know, study your market, you need to meet brokers, you need to inspect properties. Similarly, REITs can be quite time consuming as well.

[Scott Trench]

Awesome. So let me transition to kind of attractive sectors here and I'd like to start and then hear your opinion here. But I have kind of three theses that I'm interested in exploring. I have committed money to one of the only one of these so far. The first, which I did place a small position in, is office real estate. My belief is that office is a really unique and Interesting opportunity right now where a good portion of the office buildings that are vacant right now will never really functionally return to being offices again.

[Brandon Turner]

Right.

[Scott Trench]

You have a large tenant who vacated, their building's old, it's useless, it's gone. And that means that vacancy rates are overstated in many parts of the market sector because they're including these buildings that are just not really competitive anymore. And the second part of this is that a lot of leases still are going to mature in the next few years with tenants who have no reason to renew or will renew with much less space. That is simultaneously overstating occupancy in the better stuff right now. So you have a really interesting analysis challenge, but boils down to in markets where people are moving and businesses are moving in the class A sector, I think you have a really long tailwind for demand for return to office in that sector. And you may have very low pricing priced on today's occupancy rates. I made a modified version of that here locally in Denver in an office building that I thought had a chance to fill back up when positioned really well over the next year, seven years of our hold. But when I was looking at this from a REITS perspective, there seems to be moderate opportunity. It doesn't seem like it's really fully priced in that this is a deep bear market in that specific expression of the thesis. And it seems like if it was, then you have to really go into a market that you may be less comfortable with. Like Dallas, Texas, people seem to already be pricing. This is going to happen back in. But in Denver perhaps they're not really pricing that in. Maybe, maybe rightfully so. But what's your opinion on this? In a nutshell, I've gone very fast here, but has this occurred to you? Have you thought through this thesis?

[Jussi Escola]

So generally speaking, yeah, I agree that clearly the gap is growing a lot between the class A office building with great amenities that's very well located versus this very generic office building. The gap is getting enormous. And so if you're asking me if I'm generally bullish on office including this generic office buildings, then I would say no. But these class A buildings can be very attractive investments probably over time. And you know, most office REITs, they focus on these class A new build, modern, great amenities type of buildings, often in supply constrained markets like in New York City. And so because of that, while their market sentiment has taken a hit, it's not quite as much as many would expect given this narrative going around that offices are not needed anymore. Everybody can work remotely and AI is going to lead to major white labor forces disruption and so on. But no, I agree with you. I think that in many ways the demise of these lower quality buildings is going to benefit these higher quality buildings as tenants are moving out and they are consolidating, perhaps leasing a bit less space, but they are leasing that space in the higher quality buildings to motivate the employees to get back to the office. With that said, really one main thing that concerns me about office potentially is that I do wonder if some of this lower quality stock will change hands, get new owners sometime over the coming years with new owners coming in with much lower basis, which will then allow them to heavily reinvest in these properties to try to make them somewhat more competitive with the higher quality buildings. And they will not ever be quite as high quality as these newer built nice properties. But that could perhaps bring some new competition suddenly to the market with this, let's say class B, but improved competing a bit more with class A on the pricing. That's one element that concerns me a bit. If we see a lot of, you know, these empty buildings see new owners coming in with lower basis over the coming years. Well, second thing is how is AI going to impact the office sector? I think that in the near term it may be a net negative where companies are, you know, using some of those efficiencies to cut down their labor force. However, over the long term I think that you can also make a very bullish case. I think that AI could potentially lead to an explosion in new small business formation because it's becoming easier than ever before to start almost any type of business. And if that's the case, likely we'll have a lot more competition actually for good office buildings over time. But yeah, I kind of myself put it in the too difficult basket so far, the office sector and decided to focus on other easier plays in the REIT market given that discounts, you know, the valuations are not that different between let's say office and apartment communities or service oriented retail, which is easier for me to see the bull case. But, but I certainly think that there's a compelling argument to be made for long term to buy these good office buildings.

[Scott Trench]

I went and walked in office building, you know, maybe six months, eight months, nine months ago now. And I think the guy got this thing for like 7 million bucks, 150,000 square foot office building right in the middle of downtown Denver. So they're giving it away for free, right? I mean that's, that's Effect like it's effectively I got it for free, right? Unlevered. I think they bought unlevered. And so now it's just like I have some costs to operate this thing but if it fills back up, I'm going to make $70 million on the exit out of 10 cap if I can ever get there. Or I'm going to lose this and then some money and have to demolish the thing. And so that's an interesting bet. That's what I think is really fun about office right now for investors today is that's not my kids college fund here. But you can have potentially good odds on a series of those types of bets in the sector depending on how you want to go about it. So that's I think the case in a nutshell. And I think, you know, when you frame it like that, I think it's too hard, right for most people. But if you have a sleeve of these kind of side bets, maybe there's a case that there's mathematical alpha in some place in there. So that's one part. The second thesis I have is multifamily. I was late on multifamily. I put some money in, in 2020 or 2021 into some syndications and I write that down pretty heavily at this point I counted a zero. Maybe I'll get something out of that. I don't know in some, some apartment complexes. But you know, by 2023 we were seeing, it was clear what was going to happen in that space over the next few years. I would have said 2023, 2024 and 2025 would be tough. But what I'm surprised at is that the timeline keeps extending. And I think what's happened here is banks have been very generous or not very generous, maybe scared, maybe some combination of fear and greed from the banks. And they've been extending a lot of the credit lines so that the forced selling did not begin in Mass before 2026. We are now seeing some forced selling, forced liquidations in the space that is steadily ticking up. So 2027, 2028, who knows what that's going to look like. But it seems like the time to express a thesis in multifamily is when you see large amounts of forced selling really heavy underway for a while and we have not been there yet. That's what surprised me is that the observed market condition where to me it would be a really good time to put money, you know, go pretty big there. We just haven't had that in the apartment space yet. So what's your thought on that from a macro perspective? And then I'm sure that it varies regionally. Of course, as you look at it

[Jussi Escola]

seems like just like you have grown more and more uncertain about the multifamily sector because you know, back in 2024 I remember everybody was saying that 2025 will be the year when finally same property noi growth turns positive and we, you know, the oversupply gets absorbed in most markets and we turn the corner, things get better. Then 2025 turn into 2026 will be the year.

[Scott Trench]

I'll say this, I'm going to be straight wrong now in 2026 because I would have said rent growth was going to be really strong here in 2026 because the deliveries I'm going to be straight wrong on that one. It's going to be down and down substantially. In Denver in particular, I don't know how I'm reasonably insulated with my duplexes so far. I certainly had a couple of vacancies. But man like that is I'm just straight wrong. I would have expected that absorption to be well underway by this point two or three years ago.

[Jussi Escola]

Same. And if it makes you feel better, I think there's not just you and me who were wrong. If you listen to the REIT management teams in 2025, most of them were expecting rent growth already to accelerate in 2026 and simply hasn't happened. And now everybody's talking about 2027. But as the year progress, I feel like more and more people are again getting more concerned that actually it's probably going to be 2028. You know, it's been significant supply and then just not enough demand growth. Don't have much migration. We have like there's a lot of factors why just the market has remained surprisingly weak and so that has caused me to slow down some of some of my purchases of multifamily real estate in favor of other property sectors. But even then, you know, if let's say cap rates for a given sub sector of the multifamily is let's say five, five and a half percent but you can get something that's representative of that in the REIT sector at six and a half as an example, an implied cap rate that is quite attractive in my opinion long term it's good management not heavily leveraged with an attractive strategy with a read that selling assets and buying back shares should create value, take advantage of the spread. So you know, just not theoretical. They actually taking bold steps to try to take advantage of this, this discount, I think that that can still be quite attractive from a risk reward perspective. Not necessarily, you know, as an investment that will generate huge returns, just like potentially these office buildings, but as a more conservative investment that, you know, AI will not be able to disrupt will always in the roof of our head. So I like that aspect of multifamily. But like, I think when the robots

[Scott Trench]

start building homes, there's nowhere to hide.

[Jussi Escola]

Yeah, potentially. But I think that if you go that far in the rabbit hole of AI, I think that then it's important to start considering the value of real estate in real terms rather than nominal. Because I think that if robots are literally building everything, I think that you'll see the cost of most goods and services still drop a lot more than real estate. So in real terms, the value of real estate will still hold its own quite well.

[Scott Trench]

I feel the same way. Yeah, that's, that's how, that's how I've expressed it in the past. There is exactly what you just said. So if you have, if you're betting on deflation, what's going to deflate the least?

[Jussi Escola]

Yes. And so in real terms, real estate will still hold its value and in its purchasing power measured by most other goods and services. And obviously you still have the land, you have the building permit, you have the bureaucracy, you need financing, you still need building materials. So yes, it may come down somewhat, but probably not as much as many other goods that can be produced at scale in some factories by robots. As an example.

[Scott Trench]

Here's another question, actually as a deep dive on the. I understand the multifamily and residential real estate space much better than I do the office financing piece. I mean, it's actually fairly simple in some of these commercial spaces, but in multifamily, you know, I see some real wacky financing stuff going on in single family and multifamily, especially as the portfolios get complex. Literally to the point where I was pitched a syndication deal once and here's the premise. It was like a portfolio, single family homes and they were being purchased at a 7 cap. Great. Then there was a really complex debt structure that involved like short term, some, some short term components, some, you know, longer duration stuff, some balloons like all these different crazy things. And the return of this thing was like 11 or 12%. And I was like, if you assume three and a half percent appreciation and seven cap, you get the ten and a half cap. And I know it's, I know it's like a little crude way to do it, but why Are we doing all this for 100 basis points of return on the financing piece? It's like kind of crazy when you just buy the thing paid off. This is what I've done as I bought some paid off properties last year. It looks like rents went down right afterwards. That was not the thesis in there. But again, I'm still, still doing fine with it because it's unlevered. Right. I'm going to, I'm getting an okay return on the thing. Why is that not being expressed more in the REIT space right now? And why are they going to these crazy lengths with the financing? And how do I then underwrite the untangled mess of financing that goes on at a lot of these REITs?

[Jussi Escola]

Yeah, I mean, in the case of your syndication, I, I mean, I don't know, but I would assume that if you didn't have all this financing and you looked at the potential unlevered return after fees probably to have been quite a bit less than 10 and a half. So maybe part of the difference is the fees that the syndicators were trying to take for themselves.

[Scott Trench]

Same with the REIT sector. Right.

[Jussi Escola]

So to a lesser degree you're right. So in the REIT sector you have some REITs that take so much debt, they are so greedy and create such complex capital structures that, that eventually push them into bankruptcy. I mean, it's rare in the REIT sector, but you'll have a lot of REITs that turn into value traps where they take a lot of, they took, read it, they try to maximize the size of the portfolio and that comes with taking a lot of leverage and very complex structures. And in the end, you know, this was supposed to allow you to earn better returns with the leverage, but in the end, actually in the REIT sector we've seen that the, the REITs with the lower leverage have delivered better returns than highly leveraged REITs over the long run because not only they avoid the big crashes during downturns, but on top of that they're able to act aggressively and buy properties of distressed sellers when times are tough. And that creates a lot of value over the long run. And because of that, most REITs have now learned their lesson. And especially following the great financial crisis, REITs have been gradually deleveraging. And so the average loan to value in the REIT sector is today in the 30 to 40% range, which is, is quite conservative by most private real estate investment back. Most private real estate investors commonly will use 50, 60, 70% loan to values or even more in some cases. So by those standards, REITs are actually quite conservative today. And most of them don't have a very complex capital structure. But you're right that there are quite a few that are. And one company that lost me quite a lot of money is called Brannix. And it's a German REIT like entity. It's not a fishery structure that is reit, but it's a REIT like entity that owns a lot of office, but also industrial real estate. And they closed a major deal just before the surge in interest rates. Unlucky timing. And since then they've been trying to sell assets to pay off debt. They failed to sell enough of them. And so recently they had to come to a restructuring agreement with their lenders and they came up with this really complex structure with different tranches of debt, very high interest rate, some of the debt is not being, the interest is not being paid, it's simply being accumulated in kind. So the loan balance keeps on growing over time. And once again we get back to management. You know, real estate is a people's business in the end. And if you have a very good skillful manager that shareholder friendly probably it will not make the mistake of being too greedy with leverage and it will think long term, over a full cycle and make sure that they can survive a major black swan, because those black swans will occur. But then again, if you invest in the REIT or the syndication that's managed by someone who's greedy, just looking after their share, short term financial interest in the form of fees, then these things will happen.

[Scott Trench]

So this one's more speculative. I actually don't know anything about this category, so I want to ask you, but it seems like there's a narrative out there that these data centers have been really ripping and providing a huge disproportionate share of the positive return that we've seen in the last year. If we zoom in on that area in the REIT sector, can you tell us what's going on in the data center sector?

[Jussi Escola]

Yeah, I mean, data center REITs are doing quite well. They've benefited from this AI trade and the AI revolution is unquestionably leading to significant demand for this infrastructure and it's leading to growing rental rates, occupancy rates. But myself, I'm actually not very interested in these specific REITs. And to be fair, I'm not even super well informed about them. I don't follow them that closely. And that's simply because I don't really view them as traditional real estate investments in my Mind, the terminal value of these buildings remain very uncertain. You know, let me ask you this. Do you think that today's data centers will be similar as the data centers 10 years or 20 years from now? Or do you think that perhaps investing trillions of capital in this space might lead to some new major innovations and that could then potentially not just maybe not render the property completely obsolete, but perhaps its value could be cut significantly if suddenly it's simply not nearly as efficient as the data center of the future. And because I'm not a technology expert, I'm not able to answer the question of what the probability is of this happening. But. But I just feel like if you're investing so much capital in this space, likely we're going to keep seeing some innovations over time, and perhaps, you know, what we're building today and what's valuable today might not be in the future.

[Scott Trench]

I think that if I were to Talk to an AI about REITs right now and attempt to have this conversation, I would have very few of the opinions and insights that you're generating. I'd have more data, and much of it would be wrong that I'd have to recorrect in there. And that's being powered by an average AI data center of hundred megawatts, UC's brain right here, and all of the intellectual horsepower he brought to this conversation is being powered by 20 watts. That's a ratio of 5 million to 1.

[Brandon Turner]

Right.

[Scott Trench]

So the data center is consuming 5 million more watts than your brain is. There's no, like, physical reason why the data center has to be that large in the end, in a terminal sense. Now, whether that's 20 years from now. And these things provide an excellent return for their investors because the cash flows grow exponentially over those 20 years. And then, you know, hundreds of years in the future, the AI chips that we begin to use are moved into a vehicle that can be contained, you know, in the same volume or mass as the human brain or smaller. But, you know, there's no reason why these have to be there for that long versus, you know, human habitation probably needs some minimum size that's more there. So we can get to the really big theory, like that's, that's where you kind of can arrive there. But I like your answer of these are really uncertain where they're going to end up and how's that going to go. And I think it's a really good bet that you're going to see more megawatt capacity being built in the next few years. And I think it's a really open ended question whether that's going to be the case in 10, 20 or 30 years.

[Jussi Escola]

And obviously you have the REITs. And not just the REITs, but the major private equity players like Blackstone and Brookfield and Bluewall. They're all making the very compelling argument that this is an amazing opportunity for investors because you can develop a major data center and have an a credit tenant. I mean some of the best credit companies in the world list that space for 20 years with a strong lease, they take care of all the expenses and you earn a pretty good return, like solid cap rate with rent escalators. But what's the value of that property in 20 years? That's the thing. And if you think that the terminal value is good, then it's an amazing investment. But if you feel that's a bit of a coin flip, you're not a technology expert like me, then that's the reason that has kept me away from these investments so far.

[Scott Trench]

Kind of like that inverse of that office investment investment, right? Because you know, office is, you know, either going to zero or it's going to a lot. And you can buy really cheap. This one's either going to a lot or going, going to zero eventually. And, and you can buy it, you know, fairly expensive, but it has cash flows that you can underwrite in the next few years. That's the, the difference there. I think that'll be interesting and I find that a very challenging thesis as well. But it's really fascinating for you to be able to go so quickly into a lot of these expressions. So those are, those are the three big ones I wanted to cover here, which were office, multifamily and then the data center, actually high level. Where are you looking? What are some of the places that you think are the most prime for opportunity right now in the REIT sector?

[Jussi Escola]

So I like service oriented retail a lot right now. And by that I mean this like a strip center that's anchored by a grocery store and some tenants that focus on essential services. Those are quite attractive in my opinion because retail is under supplied today. It was out of favor for so long that very little got built. And now occupancy rates are growing, rents are growing, same property NOI growth of most of these retail REITs is 3 to 5% annually. And yet despite that, these REITs often don't trade at valuations that are that different from multifamily REITs as an example, which are facing stagnating rents or even slightly declining rents. And so I think that's an attractive opportunity. Unfortunately, less so than it was one year ago. They've now risen already quite a bit. In 2026, our biggest investment in this space, called Whitestone REIT, got bought out by private equity players. That one worked out really well. But we still own some investments in this space, including Kite Realty Group, Kymco Realty and some others. So retail is attractive in my opinion. Alternatively, while we talked about data centers earlier, many investors like to invest in data centers to profit from this AI revolution. I prefer to invest in cell tower rates. I think that they will also benefit from the AR revolution over the long run, as I expect it to lead to an acceleration in data consumption. You know, you more and more of us have apps like ChatGPT on our phones, very data intensive. But on top of that, we're going to have more and more of these autonomous vehicles everywhere. We'll have, you know, a lot of smart city technologies using AI. We'll have at some point, perhaps humanoid robots. And all of that, I think is very data intensive. And it's going to force the tenants of these towers to reinvest more heavily in the equipment. And I expect this to, over time, lead to higher rental income for these REITs. So that's, I think, a narrative that's overlooked today by the REIT market. And I think that makes the sell tower REITs quite compelling as they trade at historically low valuations. I think that those will be the two ones that come to my mind when spring hits.

[Brandon Turner]

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[Scott Trench]

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[Scott Trench]

This has been fascinating. So it sounds like the takeaways I've got today are you agree REITs in a broad sense have really gone nowhere for a long time. At least 10 years, maybe 20 years. Small positive nominal price increase. There's been distributions of course, but really just been crushed by owning a single family home as a rental for example, or maybe just buying your family house rather than invest in a REIT, REITs, you might have done better over the last 10 years, 12 years, then it's been crushed by the broader market. And if you're going to invest in these REITs, there's a thesis that you need to bring to bear on where you want to find the opportunity. That's a very complicated, difficult process and you can be very wrong in each part of it. And if you're going to invest in individual REITs, then you got to understand how to value the underlying assets, you got to understand the growth thesis and then you got to understand if they check that box that says I self manage or not in your opinion as some of the major factors in making that decision. Is that a good summary of the key takeaways from you today?

[Jussi Escola]

It is. The only thing that I would add is that I would argue that it's not that different in the end from private real estate. Probably if you looked at all real estate combined, probably all single family homes in the US in every market, including all the tertiary market, the secondary market, more rural places with declining populations, probably the returns have not been all that great over time. But if you're more selective, if you first you, you learn about how to invest in real estate, you know how to look for a good deal, you get educated, then obviously you can find some great investment opportunities. And it's a bit similar in the REIT sector. There's no magic. I mean you can buy an ETF that represents everything and your returns might be decent if you have. If the REIT market is going through a good time and the market sentiment is strong, but especially if you go through a long bear market and many black swans, you're going to do a bit quite poorly. And if you want to earn good returns, probably you need to be a bit more selective. And again, you need to spend some time educating yourself, doing some research. It can be a full time job if you want to do it right. It's not an easy way of investing, but if you do it right, it can be very rewarding. And you know I gave you the example of escrupe properties in the past, but there are countless examples of REITs that have existed for decades and including in this past time period where most REITs have done poorly, they've kept compounding very strong returns consistently over time. So the key is to be selective, just like in private real estate.

[Scott Trench]

Awesome. Well, you see, where can people find out more about you?

[Jussi Escola]

I have a substack called High Yield Landlord. Alternatively, I wrote this book which you mentioned earlier called the REIT Advantage recently. Oh, it's blurred so you cannot see it, but it basically discusses pros and cons of REITs versus private real estate as well as my investment strategy. But those are the two places where people can find me.

[Scott Trench]

I would refer people also as well in addition to your book, to the conversation we had previously here on Bigger Pockets Money. You can just Google UC Escola biggerpockets money that's J U S S I A S K O L A U C Escola and we had a wonderful debate. I thought about the pros and cons of privately held real estate, single families, duplexes, triplexes and complexes versus the REITs world. And they're real pros and cons. And there I think arguments for both. I thought that was really, really fun one. So go check that one out as well. And go check out the REIT Advantage by UC and High Yield Landlord. I have at various points been a subscriber to your excellent like this this newsletter and series of analyses that are constantly rolling out on various REITs. Is that the right way to describe that?

[Jussi Escola]

That's the right way to describe it. And we share there my portfolio and how I'm investing in REITs and so on. And likewise, you know, I think I started following BiggerPockets. I don't even know how long ago it was, but I was not even working yet. It was very long time ago and I've been following all the content on the blog as well as on YouTube so enjoy it a lot. And you know, while I'm bullish on REITs and I like REITs a lot and in my mind it's a better way of investing in real estate. I also invest in private real estate. I think there's a place for both as we've discussed in this earlier interview.

[Scott Trench]

Oh, you have a private real estate now?

[Jussi Escola]

Well, the place I'm right now as an example is private real estate and I own this one. It's a little these days it's become my office, but initially it was my residence.

[Scott Trench]

The house hack or business hack? You know, the business hack is a less talked about one because you're different type of profile. But moving into the office building that you then rent out to other people or using your converted house, whatever it is, those are the same concept and I think it's really hard to beat a I'm going to move into a property and then also turn portions of it into income or other productive use. That's just a killer app that beats buying a Duplex, out of state or, you know, the next market or REIT or a syndication. I think in many cases, for many

[Jussi Escola]

people, no one is ever going to be a better tenant than yourself to your own property and then no one's

[Scott Trench]

ever going to be a better landlord. As the renter from the property. When you want to move out and move into the bigger office down the, down the block, you think your landlord will let you out of the lease?

[Jussi Escola]

Yep.

[Brandon Turner]

Well, awesome.

[Scott Trench]

Well, uc, this is great. Let's catch up again in six months or a year and see how things are going. And good luck with the REIT portfolio this next year.

[Jussi Escola]

Thank you very much again for having me. It was a pleasure. Talk soon. Bye. Bye.

[Scott Trench]

All right, that was UC Escola. Scott, what'd you think? Great question. I thought it was pretty, pretty interesting discussion. I think UC is really, really knowledgeable

[Brandon Turner]

about all this stuff.

[Scott Trench]

I think it's been a really tough market. So he's clearly spent a lot of time studying this and I thought it was really fun to talk with someone who is, I think studied the REIT landscape as intensely, maybe even more intensely than I have studied the small mom and pop or you know, retail landlord that has 10 or fewer properties. So I mean the amount of hours I spent talking with people in that space, you know, probably comes reasonably close to rivaling what he's put into the REIT sector. And it's amazing how many parallels exist when you really dive deep across those two sectors in terms of what seems to work for the small mom and pop and what seems to work at scale for the REITs. I think the most fascinating thing is self management or close proximity to the properties. Maybe not necessarily self managing, but I think that's going to be a major theme in real estate returns over a career is are you close to the property and are you involved in the decision making on any high stakes or you know, maybe even the day to day operations of managing a portfolio. And I bet that has an enormous difference maker in the long term returns at every level of real estate investing across the entire spectrum. So that's my biggest takeaway from today's call. As a reminder, [e-mail] we have a whole host of developing resources. We've got like I think 20 artifacts now in our resource [e-mail] resources. I've published four calculators. Those can be found at biggerpocketsmoney.com and you can go to the dropdown for resources and you'll see the I guess five calculators that we've released at this point across budget benchmarking, Monte Carlo, pay down the mortgage or invest in real estate calculator, income tax projection tool and a healthcare cost estimator and many more to come. So those are I'm having a lot of fun building those and go check them out, provide any feedback and we're constantly iterating and shipping new ones. So check that all [e-mail] and email me if you have any [e-mail] all

[Brandon Turner]

right, that wraps up this episode of

[Scott Trench]

the BiggerPockets Money Podcast. Today's lease on your time has expired and so I'll see myself out. That was kind of a reach Reach

[Brandon Turner]

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