A beginner’s guide to REIT investing 


If you have just started your journey as an investor and are looking to invest in real estate without actually physically buying a property, REITs are the best way to achieve this. However, as a beginner, you might be quite confused about the whole topic of REIT investing.


To help you get clarity in this regard, here’s your complete beginner’s guide to REIT investing 


What exactly are REITs?

REITs is the acronym for Real Estate Investment Trusts - these are companies that maintain a portfolio of money-making properties. REITs own commercial properties like business complexes, housing apartments, hotels, hospitals, and any other such properties that are great assets to earn income from the real estate industry.

 

How does a REIT function?

REITs technically look for investors who wish to become a part of the real estate industry and use their capital to buy, sell and manage properties in an effort to cumulate huge profits. They offer dividends to their investors in return for their invested capital. REITs by law are required to give 90% of their income after tax as dividends and thus are amazing steady income financial assets.

You can find many REITs listed in the private markets as well as the public markets and they prove to be pretty liquid investments in both the marketplaces. 


What are the types of REITs present in the market today?

There are mainly 3 types of REITs present in the market today -

1)      REITs working on equity-based income - Many REITs present in the market today are equity REITs. Their main source of income is rent which gets distributed to investors in the form of dividends.

2)      REITs working on mortgage-based income - These REITs earn their income from mortgages and loans. Some even make profits from buying and upselling properties backed by mortgages. However, their main source of income is the profit from the interest they receive from giving property loans and the cost of financing them, much like a bank.

3)      REITs making the best of both - Hybrid REITs are made by combining the above two types of REITs and offer their investors the best of both worlds.

 



What are the benefits of investing in REITs?

There are plenty of benefits of REIT investing and they are -

1)      REITs are a very liquid investment.

2)      They are great tools to diversify your portfolio.

3)      REITs believe in transparency which means you get significant control over how and where your money goes.

4)      REIT investing provides stable income via dividends.

5)      The returns are adjusted for the involved risks.

 

What are the disadvantages of REITs?

 

1)They do not have a very high growth potential in terms of returns.

2) Some REITs charge high transaction and management fees.

3) The income from dividends is taxed as regular income.

4) They subjected to market risks.

 

REITs are great financial assets to have in your investment portfolio if you are looking for a diverse, stable return generating asset allocation.

 

We hope this article clears all your doubts about REITs and you are now equipped with all the right information to make an informed decision about REIT investing.



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