How to Invest in REITs: Should You Add Them To Your Portfolio?

Daniel Penzing
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Pros & Cons of Investing in REITs

There are many advantages to investing in REITs. They offer investors attractive cash flow potential with steady dividends, and provide diversity to the investors asset base by harnessing growth potential in a wide array of industries. Furthermore, REITs have been a dependable asset for income-seeking investors for quite some time, and are a proven investment.

However, it’s worth mentioning that a REIT investment is far from a sure thing. The recent downturn in the economy triggered a decline in REITs. The sector suffered a 27% drop in 2008, compared to the 2% correction in the stock market, which means the sector was hit two-and-a-half times more.

To make matters worse, the sector took a long time to recover. Reinsurance continues to struggle in the aftermath. The sector was down 79% at one point. Things have finally started looking up and the sector has been posting gains over the past few months, but investors should consider themselves forewarned.

However, on the bright side, consumers have been showing signs of better economic confidence lately, which bodes well for REITs. Additionally, the increased volatility in the market has actually created fertile ground for long-term growth. Those who got in early and are willing to stay the course may just be handsomely rewarded.

All About REIT Investment

A real estate investment trust ( REIT ) is a corporation that owns or finances income-producing real estate. REIT investors pool their money so as to purchase properties that are unlikely to be acquired by private real estate investment interests.

Usually, investors in a REIT are issued shares in the trust, which entitles them to a pro-rata share of the real estate asset holdings. REITs differ from private equity and other property investments, such as real estate limited partnerships (REITs), in that they do not trade in a secondary market.

Investors in private equity and real estate limited partnerships deal with the properties directly. For real estate investors, these investments are relatively higher in risks.

Advantages of Company Trust Investment

The REIT issuer issues shares and transfers the ownership of a property to the trust. The trust then pays a fixed cash dividend on a monthly basis which the trust believes will be enough for the investors to comfortably manage maturing mortgages and still achieve significant growth and distribution.

A REIT pays income tax on its net profits, at the corporate tax rate, just like any other corporation. However, as a REIT is operating as a company trust, it can accumulate its profits without paying out distributions.

What are REITs (Real Estate Investment Trusts)?

As a whole, REITs represent one of the best opportunities for the average investor to secure conservative wealth. It is impossible to adequately quantify the number of people all across the world who have personally benefited from REIT’s rock steady, dependable growth.

If you’re like most people, you’ve invested in your home, owned a few investment properties, and maybe even dabbled in some actual real estate. But what if there was a new way of earning the same benefits as owning a house or a multi-unit property without struggling to figure out how to operate it or worrying about its long term viability?

That’s where REIT’s can offer you an incredible solution.

But if you’re not familiar with REIT’s, you’re definitely missing out. This amazing investment tool is a leading candidate as the very best option for the average real estate investor. But before you jump in, you may be tempted to avoid REIT’s altogether. And that’s a very rational response.

After all, REIT’s are not exactly the most simple investment tool in the world.

Should I Invest in REIT?

Real estate investing is a common investment strategy for people interested in passive income. However, real estate usually requires a great deal of upfront capital, and the search for the perfect property can be stressful. Exchange Traded Funds (ETFs) can make real estate investing easier and more affordable.

An ETF tracks the performance of a stock index, a commodity, bonds or a basket of assets. Exchange traded funds are very popular among investors because they are easily bought and sold on the stock market.

What Are REITs?

Real Estate Investment Trusts, or REITs, are comprised of a large number of commercial or residential properties, which the company rents out. Renting out properties allows REITs to have a steady stream of income. It also eliminates the stress of having to search for a property by using a larger pool of properties.

Examples of REITs:

Granite Properties (GRP-T) operates housing properties.

Lorillard (LO-T) has a portfolio of tobacco stores.

Ventas Inc. (VTR-T) invests in senior housing properties.

Below are a few things you need to understand when considering REITs:

Advantages of REIT investing

Although REITs have warned investors to be patient, there are good reasons to consider this sector. Here are some of the benefits of investing in REITs:

Location, location, location: REITs buy the tenants, so they have to be near the consumers to do their jobs well. That means REITs are usually close to some of the best economic regions in the world. For this reason, REITs are more likely than other investments to be in solid real estate markets. They also are most likely to survive the next real estate downturn.

Access to growth markets: Although the global real estate market is slowing down, certain regions are still experiencing growth. This means that REITs have access to investment opportunities in emerging markets that other types of securities do not. “This year is having more of an impact on certain countries or segments than others,” says Carlyle’s Meehan. “There are good REITs in the U.S, and there are very good REITs in London.”

Disadvantages of REIT investing

Are Equity Real Estate Investment Trusts (REITs) still an attractive investment today? Read on to learn what you should know before investing in real estate stocks.

REITs became popular during the 1960s and 70s in the United States when real estate was still considered a solid investment. Investors were looking for ways to diversify their investments and saw real estate as a way to limit market risk. The use of REITs became popular again during the 1980s as an alternative to the dropping stock market.

Today, interest in REITs is growing again. In the current sluggish economy, many investors are seeking investments in hard assets. In addition, real estate has proven to be a relatively safe investment, and many believe that REITs should be part of a diversified portfolio. There are risks to investing in REITs, however, as is the case with any investment.

You should be aware of these risks as well as your options if you are considering investing in REITs.

In Summary

A REIT allows investors to purchase a portion of a real-estate property without having to purchase the entire property. There are no laws requiring that investors are actually residents of the state where the property is located so it is possible to buy real-estate across the country or even around the world with REITs. REITs can also be traded on the stock exchange.