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Real Estate Investment Trusts (REITs) Made Simple

Real Estate Investment Trusts are a stable, safe, and solid way to invest in real estate. While they are typically thought of as conservative alternatives to full-fledged commercial property investments, REITs offer a number of attractive benefits. Still, for the average investor, the world of REITs can be confusing at best and overwhelming at worst. Welcome to real estate investment trusts made simple.

Find a detailed exploration of what REITs are, how to enter the REIT market, and more below.

What is a REIT?

Real Estate Investment Trusts are companies that either operate, own, or finance real estate that produces income. REITs are strictly regulated and must meet government guidelines to be certified and traded like other securities.

Individual investors are allowed to buy into these companies by purchasing shares on an exchange, much like stocks, or by holding shares in a real estate-focused mutual fund.

REITs commonly focus on a particular type of commercial real estate. For example, one REIT may invest in strip mall properties, while another might limit their focus to developing and operating self-storage units. Still another REIT may manage student housing near major universities.

How Can I Invest in REITs?

While not all REITs are listed on public exchanges, the vast majority are. If you have a brokerage account with a major trading platform like E-Trade, Vanguard, or Charles Schwab, you already have every tool you need to invest in a REIT.

Investing in privately-owned real estate investment trusts is a bit more complicated. First, as the name implies, these trusts aren’t traded on public exchanges. This means they are not registered with the SEC and don’t require the same level of regulation or oversight. For this reason, and several others, private REITs aren’t recommended for new investors.

Finally, private placement REITs are generally only offered to institutional and/or accredited investors. This means you need to either manage a fund or have a net worth exceeding $1 million.

What are the Benefits of Investing in REITs?

There are many benefits to picking a REIT over traditional stocks or bonds. REITs even offer some benefits over commercial property investments, especially for those newer to the world of real estate investing. So, why should you bother investing in a REIT? Here are a few reasons:

  • Portfolio diversification – REITs don’t follow the trends and swings of the stock market as closely as stocks, ETFs, and mutual funds. This means that they are valuable assets for diversifying your portfolio and protecting its value during economic downturns and market corrections.
  • High returns and dividends – REITs can offer returns that outperform major exchanges like the S&P 500. The dividend rates for REIT shares are typically higher than stocks.
  • High liquidity – unlike an actual piece of commercial property, REITs can be bought and sold nearly instantly. This makes them a much more liquid investment.
  • Investment in real, tangible property and assets – when you own a share of a REIT, you are essentially a part-owner of a piece of real estate with the security that even in a market downturn, real estate is not likely to become valueless – unlike stock in companies that go bankrupt or out of business.

REITs are a Great Option for Diversifying Your Portfolio

using REITs to diversify your portfolio

 

Savvy investors around the world invest in REITs in addition to stocks, bonds, and commercial real estate. Not only do real estate investment trusts offer benefits like high dividend and liquidity, but they also present less of a learning curve than direct real estate investment. So, if you’re looking to diversify your portfolio, a REIT is a good choice.

Now that REITs have been made simple, it’s time to ask just what type of investing you want to do. If you are an experienced investor who wants to purchase commercial property on your own, a REIT may not be your best option.

Contact Lionshare Lending today if you want to invest directly in property. With over forty years of combined experience, we are the premier choice for private commercial loans. Call us now at 855.505.LEND to start your loan process.

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