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The Benefits Of Real Estate Investment Trusts

Written by Posted On Thursday, 15 August 2019 23:49

Real estate investment trusts or REITs are publicly-listed companies that own and manage income-generating real estate. When you  purchase a REIT, you will be issued a unit that makes you eligible to earn dividends from the income of the REIT property. REIT investments work similarly to stock investments and are also available as an exchange-traded fund (ETF) or mutual fund.

A REIT investment is an alternative way of investing in real estate since there is no need to purchase a property to rent or flip. REITs provide investors a more convenient and safer way to participate in real estate investing. The dividends earned by a REIT investor comes from ordinary income, returns of capital, or capital gains.

Should you invest in REITs? Although  REIT investments also have their own set of risks and drawbacks, the benefits of these investments outshine the disadvantages. Here’s how you can benefit from investing in real estate investment trusts:

1. Liquidity

Real estate investment trusts offer high returns, and the liquidity of real estate assets is better in comparison to stocks. REIT securities are available in global exchanges, so the units are sold or bought like the shares of stocks of any publicly-listed corporation. REIT investments are far more liquid than purchasing a real estate property, which may take weeks or even months to liquidate. REIT investors enjoy very high liquidity that is entirely unheard of and impossible in traditional real estate investments.

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2. Diversification of Portfolio

Anyone who has some experience in investing knows that it is not a good idea to put all their eggs in a single basket. However, participating in traditional real estate investments require a significant amount of capital and exposes investors to volatile real estate price fluctuation. REITs offer investors the ability to diversify their portfolio. Investors who want to expand their collection of investments should consider REITs since the capital commitment is not as much as traditional real estate buying and selling. The prices of real estate are not associated with or dependent on blue-chip or corporate stock prices. This lack of correlation makes REITs a good option for investors who want to have a more diversified or balanced portfolio.

3. Better Predictability

Real estate investment trusts offer higher predictability compared to other forms of investments. Since REIT assets rely mostly on real estate properties, the ups and downs can be easily predicted simply by monitoring the movements in the market. Unlike stocks and forex trading, it is easy to predict the prices of REITs accurately. This predictability is one of the many reasons why many investors put their money in REITs. Another reason to love REITs: the performance of REITs have always outdone the records of the stock market!

4. Choices, Choices, Choices

It’s easy to assume that REITs have fewer investment options to choose from, but REITs also provide lucrative opportunities for retail and individual investors. The types of REITs are classified based on how the shares are sold or bought, which include the following:

  • Equity REITs
  • Mortgage REITs
  • Hybrid REITs
  • Publicly-traded REITs
  • Public Non-traded REITs
  • Private REITs

5. Managed by Experts

REITs are businesses handled by highly-qualified and experienced investors. These professionals are experts in real estate prices and market changes, so a misstep is quite unlikely. Who pays for these REIT market analysts and managers? REIT investors pool their money and also pay a small percentage of the fund manager’s fees. Investors can benefit from having an expert handle their money for them.

6. Transparency and Performance

Another reason many investors favor real estate investment trusts is its transparency and performance. Audited REIT financial reports are distributed regularly to investors and shareholders to ensure transparency as required by the U.S. Securities and Exchange Commission. Historically, REITs are also a better investment option than corporate bonds due to better performance and higher yields.

7. Better Dividends

REITs are known to historically provide higher profits and better wealth accumulation than regular stocks. Aside from steady income from rents, REITs are known to be less volatile than stocks and forex investments, making it a suitable addition to any investor’s portfolio. Investors who prefer long-term investments and a stable source of income can benefit from the long-term contracts of REIT tenants.

Conclusion

If you are interested in a great way to invest your money, it is highly recommended to invest in real estate investment trusts. The simple and straightforward business model of REITs allows stakeholders to enjoy higher dividends, better portfolio diversification, and protection from inflation over the long-term.

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Elena Tahora

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