Should You Consider Real Estate Investment Trusts?
By Joe Killinger
Pulling the trigger on your first real estate investment is daunting and not everyone has the risk appetite to go it alone.
If you want to start investing but don’t want to take a leap of faith, you may want to consider a Real Estate Investment Trust (REIT).
A REIT is an investment vehicle that can invest in any real estate class and they’re operated by experienced executives. The benefit of investing in a REIT is that you do receive some of the benefits of real estate ownership/investing, but you have seasoned professionals managing the properties.
Since you’re really buying stock in the company, your investment is spread out over a portfolio of properties along with other investors, which helps to mitigate risk.
REITs are required to pay out substantially all (90%) of their taxable income and most pay above-average dividends, so consult your CPA to see if this may affect your tax position. Of the 172 publicly traded REITs listed on the major U.S. exchanges with market capitalizations greater than $500 million, 94% have higher dividend yields than the average S&P 500 company.
REITs are excellent stocks to add to any long-term investment portfolio. Not only are REITs income generators, but as property values rise they have the potential to produce some impressive returns over time. Similar to when you look for your own properties, you need to look into the assets that the REIT has that have an interest in buying.
Due to the strong dividend income REITs provide, they are an important investment both for beginning investors, retirement savers and for retirees who require a continuing income stream to meet their living expenses. Instead of worrying about managing your property you simply can look over your monthly statement and monitor the management team and the assets that they’re investing in.
REITs aren’t boring, steady investments. On the contrary, they sometimes fluctuate in a big way, and move sharply in and out of favor with investors. The main negative of investing in a REIT is that you really have no control over the investments or when they sell off a part of the portfolio, you’re trusting the managers of the REIT to do this for you.
REITs are a great way to get yourself knowledgeable on real estate investing and they’re a relatively safer investment than jumping into a flip or a smaller investment and learning how to manage your investment on your own.