The Clear Benefits Associated with Investing in REITs
Real estate investment trusts (REITs) have often been viewed as a more convenient way of getting into real estate investing than any other solutions.
Highly popular before 2007, but still holding strong on the present day market, REIT shares allow investors to become partial owners of commercial real estate properties. Also, most REITs have their own management team, which makes everything even easier for prospective investors.
The Similarity between REITs and Stocks
Those who don’t know much about REITs as of yet can get a clearer picture by placing them in a similar frame as stocks. In a sense, they are very similar to stocks, since both asset classes are publicly traded and allow for a wide diversification of investment goals, as well as divided investment opportunities and indirect ownership.
This is actually quite different from most real estate endeavors which normally require the investor to provide considerable minimum investment amounts in order to even be viewed as a viable candidate.
Still, there are several advantages REITs have over stocks. For instance, the share prices are far less volatile than equity stocks due to the fact that rental income and management expenses are both far more predictable than the stock market, both in the long run and on short time periods.
Also, the low correlation that investment trust shares have compared to other asset classes, including stocks, makes them an excellent option when you’re trying to achieve a better portfolio diversification.
Invest Without Buying or Management Issues
There are two main, distinct classes of REITs (plus a third one – hybrid REITs – which is a combination of the two):
- Equity REIT: funds dealing with types of real estate that produce income;
- Mortgage REIT: REITs that focus on lending money to property owners who deal with mortgage-backed securities.
Regardless of which type of REIT you go for, you will find that it’s far easier to handle the specific details involved with taking care of real estate management issues than it is with most real estate investments.
REITs allow you the benefit of advanced commercial real estate management without the hassle of handling marketing, maintenance, rent collection and other tasks that most real estate owners have to deal with. Basically, the only thing you will have to do as an investor is collect the dividends.
Returns through Appreciation
Because of the long term stability and productivity of commercial real estate, investment trusts have always performed well as an investment solution, even if you won’t usually end up with the overwhelming price rises associated, for example, with private equity stocks.
Also, unlike stocks and other forms of investments, REITs are not affected by short terms fluctuations in inflation and interest rates, which means far better appreciation and lower risks than bonds or stocks.
The Best Opportunities for Investing in REITs
The great thing about investing in REITs is that you get to choose between a lot of different strategies and types of commercial real estate properties to invest in, depending on your economic outlook and on how much you are able to actually invest.
During these times of economic recovery, hotels or shopping malls with many small tenants can be viable options when it comes to selecting a real estate investment trust based solution. If you’re a little less of an optimist about market recovery forecast, health care is another great solution to choose that also presents fewer risks.
Of course, no matter what you choose, you have to remember that it’s still somewhat of a gamble and the economy is not doing that well these days. By learning to assess your risks, you can find out from the start what the best option may be for investing at any given time.
