Investing in real estate often looks complicated for beginners, however, there are opportunities to start investing in real estate with little money and without the burden of managing the property. This is common knowledge, but it is worthy of note that Real Estate Investment Trusts, usually referred to as REITs, are considered ideal for novices in real estate investment since they require little effort to manage.
A REIT enables an individual to invest in real estate portfolios with an aim of generating returns without the need to own real assets. Thus, thanks to the study of the basics of REITs and potential advantages, newcomers can choose a less complex method of investing in real estate.
What is REIT?
REIT stands for Real Estate Investment Trust and it is a company which invests in, manages or finances income producing properties. These properties can be in the form of office blocks, shopping malls, hotels and apartments among others. What makes REITs distinctive is the fact that through investing (seen here: https://www.analystforum.com/t/difference-between-reit-and-cref/93821) the shareholders can buy shares in the property portfolio in the same way as they can buy shares in a business organization.
These involve properties from which the company earns its revenue in the form of rents, leases or sale of the properties to the shareholders in the form of dividends. It is mandatory for the REITs to distribute 90% of their Table income to their investors, which makes the dividend a good steady income.
This is perhaps the largest benefit that comes with investing in REITs since they are relatively easy to access. Again, in contrast to conventional forms of real estate investment that always demand large amounts of capital and expertise in the management of property, REITs give the opportunity to buy shares with relatively small capital.
This makes them suitable for people who wish to venture into the real estate business but do not have capital nor expertise to buy and lease out properties individually. Another benefit is liquidity. This is unlike owning actual real estate which may take a long duration of time to dispose off, REITs have their shares on major stock markets hence making it easy for investors to buy and sell shares. Moreover, through REITs, there is always a diversification of the portfolio since they invest in different property classes and locations.
How to Select the Right REIT of Your Investment Type
Different ones exist, and therefore investment in them differs depending on the investor’s objectives and risk appetite. To begin with, the beginners should consult the market and find out more about the various ones available in the market and their past performances. If people are interested in income and security, equity ones with commercial or apartment buildings, may be appropriate.
Those investors who are seeking higher returns as well as willing to take higher risk might go for mortgage ones. One also has to assess the management team of the REIT since efficient managers can positively impact the trust’s performance (learn more by clicking the link). When choosing a REIT, it is advisable to spend some time researching their strategies and their assets which would help beginners be comfortable about their investment.
Role of REITs in an Investment Portfolio
For the first timers, REITs can be very useful in expanding the investor’s base beyond the conventional equities or the fixed income securities. Real estate investments are not as volatile as the shares because it will decrease overall portfolio volatility.
Furthermore, the monthly or quarterly income that is earned regularly from REITs can also help one get a steady cash flow which can be useful to those who invest with an aim of getting income. Nonetheless, there is the need to ensure that diversification does not solely rely on them. A good portfolio should have different securities and should be invested in different economic sectors such as equities, fixed incomes and investments.
The Changing Face of REIT Investment
Undoubtedly, as real estate markets become more complex and responsive to new changes in the economic environment, the importance of REITs in an investment portfolio will increase. Over the years there has been improvement in the technology of investment and as well as the demand for income generating properties, REITs are predicted to continue to attract both the novice and the sophisticated investors.
Furthermore, the emerging sub-sectors in real estate—like data center and healthcare—have started finding a place in the REIT portfolios providing the investors with an opportunity of investing in the specialized segments.
Another important aspect to mention is that REITs offer a good opportunity for beginners, since they are easy to work with and can bring high revenues. It gives a possibility to have regular income, diversify the portfolio, and have relatively low requirements to investment, and at the same time, they do not require managing the real estate itself.
