REITs are real estate investment trusts.

Jan 09, 2024

The housing market is at an all-time high. This leaves many aspiring homeowners feeling disheartened about achieving their dream of owning a piece of the American Dream. However, there is another option for you to own property without taking on loans and paying a 35% downpayment on a property. 

I became familiar with REITS in 2017 during a visit with my cousin in Florida. He gifted me a little book entitled Aftershock's "High-Income Guide" by Andrew Packer.

Real Estate Investment Trusts, or REITs, are popular investment vehicles that allow individuals to invest in real estate without having to buy, manage, or finance any properties themselves. REITs are companies that own, operate, or finance income-generating real estate across a range of property sectors. They provide a way for investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves.

Types of REITs

There are several types of REITs, each specializing in different areas of real estate. Equity REITs are the most common, investing in and owning properties that generate rental income. Mortgage REITs, on the other hand, provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities. Hybrid REITs combine the investment strategies of equity and mortgage REITs by investing in both properties and mortgages.

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How REITs Work

REITs typically generate income through the properties they own and operate. They must pay out at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive option for income-seeking investors. Investors can buy shares in publicly traded REITs, which are listed on major stock exchanges, or invest in non-traded REITs, which are not publicly traded and may have more limited liquidity.

Benefits of Investing in REITs

One of the key benefits of investing in REITs is the potential for regular income. Since REITs are required to distribute a significant portion of their income to shareholders, they often offer higher dividend yields than many other types of stocks. Additionally, REITs can provide diversification to an investment portfolio, as they have historically shown a low correlation with other assets such as stocks and bonds.

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Risks of Investing in REITs

While REITs can offer attractive income and diversification potential, they also come with their own set of risks. Like any investment, REITs are subject to market and economic risks, and their performance can be influenced by factors such as interest rates, property values, and tenant vacancies. Additionally, non-traded REITs may have limited liquidity, making it difficult for investors to sell their shares if they need to access their money quickly.

Considerations for Investors

Before investing in REITs, it's important for individuals to carefully consider their investment objectives, risk tolerance, and investment time horizon. Additionally, investors should research and understand the specific REITs they are considering, including their property holdings, financial performance, and management team. Consulting with a financial advisor can also provide valuable insight and guidance when considering REIT investments.

Please note: You should be investing in REITS long term. This is not the best vehicle for swing trading. Follow us on Instagram to stay up to date on topics that help you build assets

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REITs offer a way for individuals to gain exposure to the real estate market and potentially benefit from regular income and diversification within their investment portfolios. However, it's important for investors to carefully evaluate the potential risks and rewards of investing in #REITs and consider how they fit within their overall investment strategy.