Real estate investment trusts (REIT) are entities that invest directly in income-producing properties. For the investor with a heightened interest in the real estate market, REIT investments offer an opportunity to diversify within this asset class.
REIT investments are attracting novice and experienced investors who choose not to be involved in the daily management of investment properties. Working with an experienced team does make investing more manageable. Investors must understand the market’s characteristics, and REITs to invest in to generate the investment’s potential returns.
Comparing the Past and Projecting the Future
Based on income-generating property values with measurable long-term performances, REIT investments are like any other type of stock or share investment. In keeping with its strategy, REITs investments are built-in elements aligned with the economy, investors’ financial health, and the local community’s lifestyle qualities.
It’s been a good year for REITs with an expected market growth to continue heading into 2020. As a long-term investment, REITs have out performance other investment markets.
Before jumping, take a look at what the market has to offer and how it adds value to an investment portfolio. Be sure to review the REIT’s annual and quarterly reports. Choose REITs to invest in that match the investment goal to the portfolio’s expected performance.
Investment Strategies
There are three forms of REIT investment strategies for building portfolios; equity, mortgage, and hybrids. The most substantial portion of REIT property investments are equity undertakings. REIT mortgages provide money (capital) to real estate owners or operators in the form of a mortgage or real estate loans. Sometimes investment acquisitions are collateralized by mortgage-backed securities to access cash. Hybrid REIT investments implement both equity and mortgage investment approaches.
Most REITs operate as equity REITs and own or manage a range of real estate properties. In this maze of investments, there are two forms of REITs entities that investors need to know. Public REITs are traded on the stock market, and investor shares are liquid, meaning you can buy or sell at any time. Whereas, private REITs raise funds that are directly invested in properties with less liquidity.
Public REITs tend to focus on their market sector and geographic expertise. Private REITs tend to specialize in a specific real estate property type. The focus is on economic growth within expanding communities attached to income-generating properties.
Dividend Growth Factors
Linked to REITs investment incentives are dividends with return certainty. Dividends are defined as a percentage earned over a specific period. Thanks to U.S. law requirements, REITs must distribute ninety percent of the annual taxable income to its shareholders as dividends.
Investors looking for income-producing real estate properties without the headaches of ownership may find REITs to be the answer.
What some investors misunderstand about REIT investments is the potential to balance portfolio fulfillments in shifting markets. During a healthy and robust economy, REITs taxable income generates higher than average returns. When the other class markets begin to move downward, producing lower returns, dividends remain an empowered contributor to REITs total returns.
It’s a feature that makes this asset a good diversifier managing to reduce a portfolio’s overall risk while upholding returns.
Getting Started
REITs properties offer investors a diverse market class that includes office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.
Consider putting 10 percent of the portfolio investment into REITs and watch the performances. Keep in mind that smaller investment proportions will stabilize the return and reduce the risk of substantial loss, compared to the high potential payouts tied to high-risk investments. Make a point to adjust the investment percentages when new market opportunities present themselves for higher investment returns.
Although real estate may be one of the largest and most lucrative types of investment, REITs have advantages and risks. Like all ventures, REIT earnings increase with higher revenues, lower costs, and new business opportunities. Ultimately, REITs have proven to be smart investments offering long-term stability with better than average returns.
Choosing productive and stable REIT investments requires some experience and knowledge about market history. Financially it makes sense to ask an expert for advice. Decisions and asset type selections should always be based on investment performance.
