7 Best Benefits of REITs – How to Invest REITs 2018
Instead of owning real estate directly, investors can also purchase shares of a real estate investment trust (REIT) or shares of a mutual fund that invests in these securities.
REITs own and manage income-producing real estate. They are governed by many regulations: At least 75% of gross income must come from rents, interest from mortgages, or other real estate investments and, most importantly, REITs must distribute at least 90% of their taxable income to shareholders each year as dividends.
REITs specialize by property type. They invest in most major property types with nearly two thirds of investment being in offices, apartments, shopping centers, regional malls, and industrial facilities.
The 7 best benefits in investing in REITs are:
- Passive investing: REITs offer a way to invest in real estate without the hassle of being a landlord for those who’d rather have fewer obligations. REITs’ real estate investors only provide the capital for an investment and let professionals manage it on their behalf. This further means that you don’t need to have experience in real estate investing to succeed in the business. In addition, REIT investors earn passive income in the form of dividends.
- Liquidity: A rental property is an illiquid investment that requires an investor to hold onto a property for a long period of time before selling it for a profit. Most REITs, however, offer much greater liquidity as shares can be bought and sold freely on a daily, monthly, or quarterly basis.
- Diversification: REITs typically invest in multiple investment properties, which gives the REIT’s investor a diverse real estate investment portfolio and reduces risks.
- Typically investing in REIT’s is considered a safer investment, and requires little money to begin with.
- A REIT is more diversified and liquid and more hands off. Owning means management, risks and lock-in…
- The major benefit of a REIT is that 90% of its annual profits are paid as dividends and not taxed at the corporate level.
- The real opportunity, however, isn’t with privately-held REITs but is instead with publicly-traded REITs listed on open exchanges. These REITs trade just like stocks or ETFs, meaning that in addition to quarterly dividends equal to a proportional share of 90% of the profits, you’ll also own an appreciating asset that grows in value much like a stock.
Investing in a REIT rather than buying a physical property might be a better investment for you.
REITs offer many of the same benefits of direct real estate investment, such as rental profits, as well as solve many of the problems, such as a lack of liquidity and diversification.
REITs have a long history of outperforming direct real estate investing and the trend is expected to continue. For example, from 1977 to 2010, REITs have returned more than 12% annually. This is in comparison to the roughly 10% return of the S&P 500 and the 6% – 8% return of private real estate funds during the same period.
If you’re thinking about increasing your real estate exposure, it’s important to consider a REIT. While direct real estate investment is sometimes better, such as if you live in a local market that’s booming, the performance of REITs is typically the best.
If you have questions about investing in REITs please contact us at
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