Real Estate Investing for Everyone!
Imagine owning a piece of a property that pays you, but doesn't require the up-keep, evicting somebody, or any other hazards one can think of commonly found in real estate investing. Real Estate Investment Trusts make this dream a reality for everyday stock-market investors. Should you reserve a place in your portfolio for these no-maintenance properties? Let's find out!
What is an REIT?
An REIT is a company that owns real estate across different sectors. These can include, office buildings, shopping center, apartment, warehouses, and any other commercial real estate you can think of. Similar to a mutual fund, REITs create an accessible pool of shares to everyday investors without the physical demands of keeping up with a hotel for example. Dependent on the REIT one invests in, their charts may look very different. For instance, a Mortgage REIT (mREIT) provides financing for real estate through mortgages or mortgage-backed securities. While Equity REITs (most common, and what I've been referring to) own and operate more commercial real estate.
The Benefits
There is some serious upside for REIT investors, beyond having the diversity bleeding into real estate without physical real estate needing to be bought. All REITs have a serious dividend pay out, as it's enforced by law that they distribute at least 90% of their taxable income to shareholders annually in the form of dividends. Another benefit is the liquidity this offers compared to owning physical real estate; instead of hiring an agent to find a buyer, all you need to do is sell it like a stock.
Consider This...
REITs are a great piece to have in your portfolio to diversify, but don't hit buy just yet. Remember that REITs will be the most sensitive to any news about interest rates and property tax implications. Furthermore, most REITs have a substantial expense ratio as they are doing the heavy lifting. Considering this, REITs are not a good investment to the aggressive investor, but should be considered for more conservative and income striving investors.
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