The answer for those who wish to avoid all of the downsides of purchasing real estate outright while still reaping the rewards of the market is to invest in REITs. For those looking to invest in the real estate market, purchasing commercial or residential properties and renting them out is one of the most popular ways to earn income. Unfortunately, this method of real estate investment comes along with a hefty price tag, ongoing repairs, uncertainties with tenants. It is more time-consuming than many investors care to take on.
What Are REITs?
REITs, or real estate investment trusts, refers to companies who own or lease income-producing properties in various sectors. They are often traded on public stock markets and offer high returns for investors interested in real estate. Unlike purchasing an investment property outright, there is no high initial purchase price, no time-consuming buy and sell process. Investors do not have to concern themselves with the day-to-day operations or maintenance of each property. They are an excellent way for those who want to invest in the real estate market to get started with little capital without making a long-term commitment.
6 Reasons to Invest in REITs:
1. Affordable for Average Americans
From Wall Street brokers to hedge fund millionaires, those who typically benefit from valuable real estate properties have the capital to purchase properties outright. Average Americans do not have the capital needed to compete in these scenarios, particularly when it comes to commercial real estate. REITs are unique because they trade on the major stock exchanges and must meet several requirements to reach this status. This allows everyone, regardless of their income, to invest in real estate assets. Likewise, REITs can be obtained differently, whether the investor purchases individual company stock or opts to invest through a mutual fund or exchange-traded fund (ETF).
2. Diverse Property Sectors
One of the biggest reasons to invest in REITs is their diverse nature. REITs exist in sectors across the board, offering plenty of variety to investors who want to diversify their portfolios. The most popular types of REITs include:
Retail REITs make up around 24% of all REIT investments in the country. They include shopping malls and standalone retail fronts. In this day and age, many brick-and-mortar retail facilities are struggling to keep their doors open in the age of online shopping. That said, there are retail industries, such as grocery stores, that continue to thrive. As your investment returns will largely depend on the tenants generating income and paying rent, it is crucial to do your research before forking over any cash.
Residential investments typically refer to large, multi-family buildings like apartments or mobile homes when it comes to REITs. Although residential property REITs are a solid investment, location is key, and properties in large cities tend to yield the highest returns to investors in the long run.
Health-based REITs include everything from hospitals and doctors’ offices to retirement homes. The need for healthcare will rise along with America’s aging population. It is important to note that many of these investments rely on Medicare and Medicaid to receive payments. Despite this, it is still important to invest in a diverse healthcare market.
Another popular REIT sector includes office buildings which typically come with long-term leases. While the office space can bring solid returns, it is key to consider strong economic areas before investing. For instance, a booming California city investment will likely bring higher returns than several properties in a small town where employment rates are low.
Although these are some of the most popular property sectors for REITs, they are certainly not the only ones available to investors. Other top choices include industrial, resorts, time, infrastructure, and data centers.
3. High Dividend Yields
To be classified as a REIT, the company must meet a precise set of requirements. Those who gain the title are rewarded by avoiding any corporate tax obligations, regardless of how profitable the company is. Instead, they must pay 90% of the taxable income earned to shareholders. This requirement typically results in high dividend yields of over 5 percent for investors versus other stocks, which average less than 2 percent.
When a person buys a residential or commercial property, it takes time and money to complete the process beyond the initial purchase price. The same is true when a person wishes to sell a residential or commercial property–with the added hassle of waiting to find a buyer. When investing in REITs, there is no wait time if you need to access your cash quickly. Instead, investors click a buy or sell button and can have their funds within a short period of time without any uncertainties such as inspections or legal processes.
5. Competitive Long Term Growth Compared to Other Stocks
Historically speaking, REITs offer competitive long-term growth compared to other publicly traded stocks in the United States. While long-term growth can vary depending on the specific property sector of the REIT, real estate investments typically hold up well over time. Whether to provide shelter to the world’s population for farming, or retail purposes, it is a necessity. Because of this, many REITs come along with predictable appreciation. While it’s true that the trends may skew towards urbanization and the most desirable locations may change over time, the pure need for real estate makes a REIT investment more solid than investing in the latest tech trend, which may fade just as quickly as it arrived.
6. Lower Risk Than Individual Properties
The risk of investing in a REIT is much lower than if you invested in an individual property. The income-generating properties rely on multiple streams of income instead of a single residential renter or storefront. If you purchased a property outright with the intent of renting it out to a single resident, you would be heavily relying upon that single tenant to make your investment-worthy. Likewise, all your eggs would be in one basket regarding location, employment rates, natural disasters, and the likes. Much like diversifying your portfolio by purchasing stocks in varying industries, a REIT is a way to maximize your investment.
Want to learn more about how to invest in commercial or residential REITs successfully? You can avoid tedious research and get a complete overview of any relevant data in minutes, powered by Artificial Intelligence. Give us a call today at (888) 956-9998 to learn more about the process.