Real Estate Investment Trust (REIT)
Candlefocus EditorREITs have many benefits. For starters, they have a natural diversification of investments, since they tend to own multiple properties. This is appealing to investors who lack the funds or knowledge to construct a suitable diversified portfolio on their own. Furthermore, REITs typically are managed and operated by a professional team, and therefore create less responsibility for investors.
REITs also offer a relatively high yield compared to other forms of real estate investments. This is due to the fact that REITs are required to pay out their income (90 percent or more of their earnings) in the form of dividends each year. Such dividends can make a great supplement to an investor’s portfolio.
REITs are also a great way for investors who are not ready to commit to owning a physical property to still participate in the real estate market. They are more liquid than a physical property and therefore more accessible to investors regardless of their budget.
REITs invest in many types of real estate properties, including apartment buildings, cell towers, data centers, hotels, medical facilities, offices, retail centers, and warehouses. As with physical property investments, REITs are affected by the economic cycle, with performances typically improving during economic expansions and declines in tougher economic times.
Overall, real estate investment trusts present an ideal investment opportunity for many investors. Accessible, liquid, and diversified, REITs are a great alternative to physical property investments for those ready to take the plunge into real estate. Attention must be given to potential risks, however, including the volatility of REITs, depending on the economic climate.