What You Should Know About Real Estate Investment Trusts (REITs)
If you’re new to real estate investment or if you’re looking into expanding your real estate investment opportunities, you’ve likely come across Real Estate Investment Trusts (REITs). If you’re serious about investing in real estate, you should know about REITs, but that doesn’t mean you should incorporate them into your strategy. Frankly, REITs don’t make you a real estate investor. Here’s why:
A REIT is simply a company that owns or finances income-producing real estate, then invites investors to become shareholders who gain dividends, based on the taxable income earned from the real estate. This is different than a Real Estate Investment Group. Essentially, REITs enable people to invest in large-scale properties, just like they would in other industries in the stock market. Investors in REITs never have to buy or finance properties themselves. They need only purchase shares from the trust and see what happens. They have no control over or responsibility for the property.
That’s not to say that REITs don’t have value or benefits to investors that include:
• Diversification of your investment portfolio. REITs don’t typically correlate with returns from the broader stock market and hence add a different dimension to your portfolio.
• Steady dividends on the stock exchange.
• Easy transactions. REITs seem to have no trouble moving on the market—meaning you can buy and sell them with little problem.
• Good performance. REITs have a reputation of being productive on the market.
• Security/Transparency. REITs listed on the stock exchange are subject to the same rules as other companies and therefore, it’s likely that what you see is what you get.
BUT, as you can see, REITs are a stock market investment, not a true real estate investment. Real estate investing is about having a vested interest in real estate. Most residential real estate investors will tell you that there is some level of passion involved in why they do what they do, and, at the foundation, investing in real estate is about having more control over your investments. You can:
1) Choose a location/region/neighborhood you want to invest in.
2) Determine the details of where you invest your money.
3) Decide how you want to manage your investment for the greatest returns.
4) Establish your own timeline for your investment, based on your individual resources.
5) Choose who you want to work with to grow your investment.
6) Build a community around you that supports your investment strategy.
7) Incorporate creativity into your investment and involve local talent.
Those are just a few benefits of true real estate investment. If they sound like music to your ears, then your investor self will likely find REITs unsatisfying—even if they do promise healthy returns.
