Ways to Invest in REIT
Many individual investors prefer to invest in REITs because these products allow them to easily invest in stocks while having the opportunity to own and profit from real estate. They also offer regular returns as well as significant dividends to their investors. Simply put, REIT or real estate investment trust lets you invest in real estate without actually buying or managing a property.
REITs have been around since the 1960s. They are companies that own and operate a basket of finance income-producing real estate properties and ventures. Investors like you can buy shares of a REIT and enjoy a share of the earnings produced by these assets.
REITs are attractive investments not only because they let you invest in real estate without owning any property but also because of how they’re taxed. Most stock dividends are technically taxed twice. On the other hand, REIT payouts are only taxed through the investors. In a REIT, all its income is passed to owners or investors, meaning there’s no corporate tax to pay, which also means investors enjoy higher returns.
What are the different types of REITs?
REITs invest in different properties. These include hospitals, medical offices, senior housing, hotels, restaurants, resorts, factories, office buildings, apartment buildings, rental homes, shopping centres, self-storage units, and forest lands.
There are three types of REITs, each of which produces income in its way.
Equity REITs
Most REITs fall under this category, which generally owns and operate real estate properties. The revenues of equity REITs come from rents and building sales.
Mortgage REITs
Also referred to as REITs, mortgage REITs don’t own properties. Instead, they offer or hold mortgages for real estate properties. These mortgages may either be actual mortgages or backed by securities. They earn from the mortgage payments they collect, and they’re considered riskier than equity REITs.
Hybrid REITs
As their name suggests, hybrid REITs are a mix of equity and mortgage REITs. They own properties and mortgages, which makes them attractive for generalist investors who can’t decide whether they want to go with equity REITs or mortgage REITs.
What are the pros and cons of investing in REITs?
Before investing in REITs, you must know the pros and cons. REITs offer higher returns and a diversified portfolio. On the other hand, the returns you get from REITs are taxed as ordinary income, which is generally higher than different investment types. Another downside to REITs is their sensitivity to fluctuations in interest rates. This has a significant effect, especially if you’re looking to invest in mortgage REITs.
How can you invest in REITs?
There are different ways to invest in REITs.
The first one on the list is the publicly traded REITs, which are perfect for individual investors. They generally have a low minimum investment and are regulated by the Securities Exchange Commission.
The second one is public non-traded REITs. They’re not listed on a national stock exchange but are still regulated by the SEC. You can purchase shares directly from the REIT, or you can go to a third-party dealer. But there are certain investment limits you need to follow.
Private REITs, on the other hand, don’t require SEC registration because they’re ideal for accredited investors. The minimum investment amount starts at a five-figure range, making it a riskier investment.
REIT funds are an option, too. If you’re looking to diversify your portfolio and don’t want to do extensive research on individual REITs, then this option is for you.
As you can see, REITs are lucrative forms of investment when done properly. It can help diversify your portfolio while providing a steady income. Be sure to do your research well before you get into any type of investment so you can make an informed decision.
