What is an REIT? Real Estate Investment Trusts, Explained

You want to earn huge profits by investing in real property. It’s not a problem! For a novice the world of finance can be complicated. An easy method to start is by using the real estate investment trust (REIT) (pronounced “reet”). What exactly is a REIT?

What is a REIT?

A REIT can help you increase the value of real estate you have in your financial portfolio without having you to purchase an item of property.

REITs were conceived by Congress in the year 1960 to ensure that investors with a lack of millions of dollars needed for commercial properties were able to invest in real property. Many REITs are listed publicly through stock exchanges and possess various properties including shopping malls office buildings, shopping centers and hotels, apartments and self-storage warehouses, industrial warehouses as well as health facilities, such as assisted-living and medical offices.

The majority of REITs manage their properties and own the property. Some REITs don’t have property in any way and instead invest in mortgages. Some REITs aren’t publicly traded. Individual investors can purchase REIT shares without having to enter into an investment partnership.

As with all investments that performs, the performance of REITs can fluctuate due to a variety of reasons. The most reliable source of information on REITs is National Association of Real Estate Investment Trusts with extensive research and information on REITs. According to NAREIT the average annual yield on equity REITs from January 1978 between January 1978 and December 2010 was 12.3 %.

In during the Great Recession, REITs often outperformed other investments due to the fact that they had lower in debt than other private property owners prior to recession, and some even sold properties during the peak of the real property boom. The higher financial strength of REITs gave several of them to buy discounted properties by distressed private buyers during recession.

How do I make money investing in REITs

The majority of REITs are invested in a specific property type, and also diversify their portfolios by holding properties across a range of markets within the United States and sometimes overseas.

In the public traded REITs the following property industries include:

  • Retail: 26%
  • Residential: 13%
  • Office: 12%
  • Health care facilities: 11%
  • Hotels and resorts 7%
  • Self-storage: 6%
  • Timber: 5%

In the last two decades, as per NAREIT the majority of REIT properties have seen double-digit returns.

  • Self-storage: 16%
  • Health care: 12%
  • Office: 11%
  • Retail: 11%
  • Residential 11%

The future performance of REITs is contingent on a range of variables, including the economy as well as its internal administration. Different property sectors are impacted differently by macroeconomics.

For instance the retail industry is known to be impacted by the state of employment and confidence in consumers However, REIT mall owners have taken the initiative to alter their property models to counter the slowing of retail sales, for instance increasing the number of restaurants available and bringing shoppers to shopping centers and malls to enjoy the experience , not just individual shops. Individual REITs in every property sector tend to concentrate their investments on specific geographical areas or type of property for example, medical offices or luxury hotels.

Even though REIT investments consume less time and effort than purchasing property on a per-person basis, you must still to conduct thorough study any fund prior to deciding for investing.