1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

Investing in physical real estate isn’t as straight forward as investing in financial assets trading on exchanges, but has many benefits.  And Real Estate Investment Trusts, or REITs, let investors invest in a publicly-traded real estate company.  Mutual funds specialized in real estate and/or REITs offer broader diversification for a fee.

 

Buying physical properties or buildings is time consuming, requires taking on debt, paying broker commissions, and requires long holding periods.  But there are significant tax benefits (the properties can be depreciated), income-producing opportunities for renting out these assets, and appreciation potential.  They also perform well in high inflation environments.

 

For more liquid opportunities, a single REIT can let an investor gain exposure to the underlying properties this entity holds.  A tax complication could be receipt of a K-1 tax form, which can delay paying taxes from earlier in the year.  But these are stocks with ticker symbols that can be sold and cash received in three days total.  REITs also don’t pay taxes as long as they pay out 90% of income to shareholders. 

 

REITS fall into three main categories:

Equity REITs - Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.

Mortgage REITs - Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or invest in (purchase) existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest they earn on the mortgage loans.

Hybrid REITs - Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages

 

Objectives and Risks

 

Investors seeking income, inflation hedges, and appreciation potential would be well served by buying a rental property or investing in a REIT or real estate fund.

 

There are still significant risks involved in holding physical real estate. Property taxes, maintenance expenses and repair costs are just some of the costs of holding the asset. Furthermore, real estate is considered to be very illiquid - it can sometimes be hard to find a buyer if you need to sell the property quickly.

 

How To Buy or Sell It

 

Real estate is almost exclusively bought through real estate agents or brokers. Their compensation usually is a percentage of the purchase price of the property. Real estate can also be purchased directly from the owner, without the assistance of a third party. REITs trade just as common stocks do.

 

Strengths

 

Income production

Appreciation potential

Inflation protection

 

Weaknesses

 

Illiquidity of physical real estate

Real estate investing requires debt

Tax benefits, but can be complicated

 

Key Considerations

 

Liquidity:  High (for REITs and funds)

Historical Returns:  High

Inflation Protection:  High (among the best out there)


25 Investments: Real Estate Investment Trusts (REITs)
Related Articles
  1. Investing

    REITs As an Alternative to Real Estate Investment

    Does investing in real estate seem like too much maintenance? Consider the many advantages of REITs, or real estate investment trusts.
  2. Investing

    Private Equity Real Estate Funds vs. REITs

    REITs and Private Equity Real Estate Funds are two different ways to invest in real estate.
  3. Investing

    A Guide to Real Estate Investing

    Investing in real estate is a popular choice for good reasons, but it's more complicated than owning your typical stocks and bonds.
  4. Investing

    Add Some Real Estate To Your Portfolio

    From investing in REITs to owning your own home, find out how to diversify your portfolio with real estate assets.
  5. Investing

    Investing In Real Estate Versus REITs

    Article on Real Estate Investing Versus REITs.
  6. Investing

    Investing in Real Estate Without Buying Property

    Investing in real estate properties can be pricy, but there are options to invest for less.
  7. Investing

    The 5 Best Real Estate REIT ETFs of 2018

    These ETFs may be a solid investment for those who want real estate exposure without the headaches.
  8. Financial Advisor

    REITs: Still a Viable Investment?

    Are REITs viable investments now? Here's a look at the history of REITs' performance during rocky economic times and other factors that may impact returns.
  9. Investing

    The Basics of Reinvesting REIT Dividends

    Learn the essentials of dividend reinvestment in real estate investment trusts and how a dividend reinvestment plan can magnify your long-term returns.
  10. Investing

    7 Sectors for Diversified REITs

    An overview of the different types of property that REITs own.
Frequently Asked Questions
  1. What Licenses Do Financial Advisors Need to Have?

    Understand why all financial advisors are required to be licensed, and identify the specific licenses that must be obtained ...
  2. When Is Managerial Accounting Appropriate?

    Understand the difference between managerial accounting and financial accounting. Learn common scenarios in which managerial ...
  3. Do ETFs Generate Capital Gains for Shareholders?

    Learn how exchange-traded funds (ETFs) can generate taxable capital gains for shareholders due to occasional and substantial ...
  4. Why is there a negative correlation between quantity demanded and price?

    Learn what the law of demand is, the basic assumption of the law of demand and why there is a negative correlation between ...
Trading Center