What is a REIT?
As a new, budding, or seasoned investor, you might have heard of a REIT. You might even be interested to invest in one. But do you know what they are? Let’s take a look at this seemingly mysterious investment and see if it’s right for you.
Real Estate Investment Trusts
REIT stands for real estate investment trusts. These companies either finance or own real estate that produces income throughout several various property sectors. Companies that deal with real estate must meet the list of standards needed to be considered REITs through certain qualifying requirements. Major stock exchanges do trade most REITs, and these trusts offer several perks to the investors who own them.
If you’re interested in the real estate market, investing in REITs is the way to go. These investments can be added to your portfolio just as you add your other industry investments via mutual funds, ETFs, or individual company stocks. Rather than going out to buy your own real estate to make money, investing in a REIT allows you to earn a share of real estate income by becoming a stockholder instead of a property owner. REITs are prevalent investments for about 150 million Americans through their IRAs, 401(k), pensions, or other means of investments.
What Investments Are in REITs?
Real estate investment trusts hold several types of property, including hotels, medical facilities, offices, apartment buildings, data centers, cell towers, retail centers, warehouses, and various infrastructure. When investing in REITs, you’ll find several focus on certain types of properties, however their portfolios hold varying kinds of real estate.
REITs make money by collecting rent on their real estate properties through leasing the space. With this income, the company pays dividends to its shareholders. Of their taxable income, about 90% of it must be paid to these shareholders, yet most REITs end up paying 100% of their income. The shareholders, then, end up paying income tax on their dividends.
Are REITs a Good Investment?
REITs are indeed a good investment. Their payouts have been consistent historically, by delivering total returns that are competitive. This is determined by high and solid income through dividends over the long term with capital appreciation. If you want to diversify your portfolio, REITs are the way to go, as they have a low correlation when compared to other assets. Ultimately, they reduce your risk while subsequently increasing your returns. Both of these are very good things.
Over the past 45 years, REITs have provided proven dividends that grow and are reliable. When coupled with long-term capital appreciation through increasing stock prices, REITs have become quite the attraction for investors through return performance when compared to the rest of the stock market, bonds, and the like.
It definitely pays to invest in REITs and if you’re thinking about it, go ahead and dip your toe into the real estate market. These investments have proven themselves to be excellent contenders for building generational wealth.
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