Income-producing property has always been considered a great investment. But one expert says real estate investment trusts (REITs) are really where the profits are.

Consider this, said James Grant, editor of Grant’s Interest Rate Observer: While the S&P 500 traded at 33 times earnings when the stock market peaked in March 2000, The Bloomberg Real Estate Investment Trust Index traded at a multiple that was 40 percent of the S&Ps.

To close the gap, offered Grant, "the blue chips would have to quadruple tomorrow.”

He added, "Income-producing property can be a superb investment. So, too, can REITs, which pay out 90 percent of the income they earn from the assets in which they invest, buildings or mortgages or both…”

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Grant stressed that, "No investment asset is either inherently good or inherently bad. Valuation is the all in all.

"At the low March 2000 valuations, REIT investors had that sleep-enhancing cushion known as a margin of safety. At the much, much higher prices now prevailing, they have no such protection, only the smug knowledge of past returns,” he continued.

Grant opined that, "Just by going up, real estate has made believers of the former skeptics on America’s investment-policy committees…”

He cited by example The Blackstone Group’s recent $39 billion purchase of Zell’s Equity Office Properties Trust. Within two weeks of the February closing, Blackstone had "deftly” unloaded $22 billion of the Equity Office portfolio, turning a $2 billion instant profit "and proving beyond any possible doubt that there’s lots more upside left for everyone,” stated Grant.

"Real estate isn’t about the cash flow. It’s about the price appreciation,” opined Grant.

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