Investing in REITs

Want to invest in real estate, but don't want the hassle of being a landlord, collecting rents, managing properties and evicting people who don't pay up?

The real estate investment trust (REIT) is an excellent way to invest in real estate, without actually having to manage properties. This is a type of equity that is bought and sold like shares of stock. Besides typically offering a very high yield, it also gives you the advantage of liquidity. If you invest directly in real estate, not only will you be burdened with having to administer those investments yourself, it's also a difficult and time-consuming process to cash in your assets. Cashing in your assets means you actually have to use the services of a real estate agent, put your houses on the market, and wait for them to sell. Not so with a REIT.

There are two types of REITs:

  • An equity REIT is one that invests in properties, and derives revenues from rent proceeds.

  • A mortgage REIT, on the other hand, is a fund that is used to provide mortgages, and derives revenues from the interest earned on those mortgages.

You can buy and sell REITs on an open exchange, although some investors prefer to put money into mutual funds that are based on REITs. The latter option diversifies your holdings even more, by investing in funds that hold several REIT investments. A REIT mutual fund gives you the advantage of good returns, while also delivering the advantage of being managed by solid professionals with years of experience in real estate investment.

REITs become especially popular during times when the stock market is bearish, providing an excellent alternative for investment that usually delivers a good return regardless of the state of the economy. However, you can invest in a REIT at any time, and a well-balanced portfolio of investments will include some REIT investments regardless of how well the stock market is performing.

As a long-term investment, a REIT is a good option, especially as traditional stock dividends have drifted downwards over the past decade. REIT investments provide an excellent hedge against inflation as well. A well-managed REIT should deliver a return that is significantly higher than the money market--at least seven percent, with many delivering in excess of ten percent. It's true that some stock market investors get significantly higher returns than that, although the risk is much greater with common stocks--a factor that makes REITs a much safer investment all around. But also consider that your REIT investment delivers not only regular dividends, but is also likely to appreciate in share value over time as well.

As with any investment, check with your investment advisor to be sure you understand all the risks before making an investment.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.