We will discuss 3 potential areas where you might still be able to find trustable 10% or higher yields. We will mention a few specific examples for you to consider as well.
We will start with mortgage REITs. As we have discussed in one of our previous blog posts, mortgage REITs don't actually own properties, they borrow at short-term interest rates to purchase high yielding mortgages. They have been out of favor for a while as investors are concerned about the risk of rising short-term interest rates.
This analysis is definitely right, but you have to look behind the surface - what if the property owners have the power to adjust rents therefore keep up with the mortgage payments?
If this is the case, the risk will be reduced. A good example is New York Mortgage Trust (NYMT) with an insane 16.9% yield and its price is near its 52-week low. If you do your due diligence on this REIT, look for how much of its assets are in loans with such rent appreciation power, then decide whether you can take the risk.
If you want to be more prudent, Apollo Commercial Real Estate Finance (ARI) is a good choice. Why? Because despite the downside risk associated with the real estate market in the U.S., commercial real estate market might actually point up. ARI offers an attractive 10.7% yield as of mid of Oct. 2015.
In our next blog post, we will look into the Business Development Companies and uncover some of the 10% yield treasures.