An Intro To Investing In REITs
Real estate investment trusts or REITs allow individual investors to invest in real estate without owning an entire piece of real estate, such as a building. Congress established REITs in the 1960s to open up real estate investment to people who could not afford the hefty price of owning an entire piece of real estate property.
The liquidity of REITs is why they are referred to as real estate stocks. Real estate investment trusts have shares that are traded like stocks. They are also required to pay out 90% of their taxable income to their shareholders as dividends. One can think of REITs as a type of high-dividend paying stock with moderate capital appreciation when held as a long-term investment.
There are five major types of REITs. The most common type of REIT in the United States is the retail real estate investment trust. This type of REIT owns and manages shopping centers, strip malls, and shopping malls. Income is generated by leasing retail space to tenants, including grocery stores, home improvement stores, and other retail shops.
Residential REITs own and manage multi-family dwellings like apartment buildings. They can also own and manage manufactured housing communities. Income is generated by rent payments made by tenants to the REIT. Healthcare REITs invest in healthcare facilities such as hospitals, nursing homes, and medical offices. Income is generated by the rent paid by doctors and companies that rent the medical space from the REIT.
Office REITs invest in office space and lease it out to companies that need office space for their employees. Income is generated by companies that lease office space from the REIT. Another kind of REIT is the mortgage REIT. This kind of REIT invests in mortgages on a property instead of the property itself.
Above-average dividends and liquidity are advantages of investing in a REIT. They also provide a way for investors to invest in real estate without spending massive sums of money to purchase an entire piece of real estate. Risks of REITs include their sensitivity to interest rates and economic conditions that impact the properties they own and manage.