Welcome to Herconomist, where we empower women like you to step into the world of finance with confidence. Our aim is to break down the complexities of investing and present them in a language that is more relatable, approachable, and empowering. Today, we’re shining a spotlight on one of the most accessible and lucrative investment avenues: Real Estate Investment Trusts (REITs).
What are REITs?
A REIT, or Real Estate Investment Trust, is a company that owns, operates, or finances income-generating real estate. Modelled after mutual funds, REITs pool the capital of numerous investors, enabling you to earn dividends from real estate investments without having to buy, manage, or finance any properties yourself.
Why Invest in REITs?
Investing in REITs offers several benefits. They generate a steady income stream, provide potential for long-term capital appreciation, and offer excellent portfolio diversification. The comparatively low correlation with other assets makes them an excellent portfolio diversifier, helping to reduce overall portfolio risk and increase returns.
Real Estate Investment Trusts (REITs) offer an average annual return of around 10-12%, depending on the specific REIT and market conditions. This return comes from a combination of rental income (usually distributed as dividends) and appreciation in the value of the properties owned by the REIT. While the returns on REITs may be comparatively lower than traditional real estate investments, they offer a unique opportunity for investors, especially those looking to dip their toes into the real estate market. This article will delve into the reasons behind the lower returns and the potential benefits of investing in REITs.
Types of REITs
REITs are classified into three broad categories, depending on their investment holdings. These include:
- Equity REITs: These REITs own and operate income-producing real estate. The revenues are primarily generated through rents.
- Mortgage REITs (mREITs): These REITs provide financing for income-producing real estate. They earn income from the interest on the mortgages and mortgage-backed securities they hold.
- Hybrid REITs: These REITs combine the investment strategies of both equity and mortgage REITs, owning and operating real estate properties, and holding commercial property mortgages in their portfolio.
Each REIT type comes with different characteristics and risks, so it’s crucial to understand what’s under the hood before you invest.
How to Invest in REITs
Here are a few methods to begin your investment journey in REITs today:
- Online Investment Platforms: Websites like Fundrise, RealtyMogul, and DiversyFund allow you to invest directly in a portfolio of REITs.
- Stock Brokers: Traditional brokerages like Charles Schwab, Fidelity, E*TRADE, and TD Ameritrade allow you to buy individual REIT stocks, REIT mutual funds, and REIT ETFs.
- Robo-Advisors: Automated investment services like Betterment, Wealthfront, and SoFi Invest include REITs in their diversified portfolios.
- Direct Investment: Some REITs allow you to buy shares directly from them, bypassing brokerage firms. For instance, Realty Income has a direct stock purchase plan.
- REIT ETFs and Mutual Funds: Fund providers like Vanguard, iShares, and Schwab offer REIT ETFs and mutual funds.
- Crowdfunding Platforms: For accredited investors, platforms like CrowdStreet, ArborCrowd, and RealCrowd offer high-value commercial real estate investments.
Remember to do thorough research and consider consulting with a financial advisor before making any investment decisions. REITs, like all investments, come with their own set of risks.
Benefits of Investing in REITs
REITs offer several benefits for investors. They typically provide a steady, regular income stream in the form of dividends, and potential for long-term capital appreciation. They offer excellent liquidity as most REITs are publicly traded on major stock exchanges, making buying and selling shares as easy as trading any other stock. Furthermore, REITs offer portfolio diversification benefits, helping to mitigate risk.
Risks of Investing in REITs
Like any investment, there are risks associated with investing in REITs. These include market volatility, interest rate risk, and property-specific risks such as tenant turnover and industry headwinds. It’s important to conduct thorough research and understand the potential risks before investing in REITs.
How Do REITs Work?
The primary way that REITs generate income is through the rents and leases of the properties they own. To qualify as a REIT, a company must adhere to specific IRS provisions, including investing at least 75% of total assets in real estate, deriving at least 75% of gross income from real estate, and returning a minimum of 90% of taxable income in the form of shareholder dividends each year.
Conclusion
Investing in REITs is an excellent way for women to build wealth and achieve financial stability. With the right knowledge and strategies, any woman can become a successful real estate investor. Remember, the key to successful investing is diversification, patience, and a clear understanding of your financial goals and risk tolerance. So, Join us at Herconomist and empower yourself to take control of your financial future!
FAQs
Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.
What I wish I knew before investing in REITs? ›
A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.
What is the 90% REIT rule? ›
To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
Can I invest $1000 in a REIT? ›
While they aren't listed on stock exchanges, non-traded REITs are required to register with the SEC and are subject to more oversight than private REITs. According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
Can you lose money on REITs? ›
Can You Lose Money on a REIT? As with any investment, there is always a risk of loss. Publicly traded REITs have the particular risk of losing value as interest rates rise, which typically sends investment capital into bonds.
What happens to REITs when interest rates go down? ›
With rate cuts on the horizon, dividend yields for REITs may look more favorable than yields on fixed-income securities and money market accounts. However, REIT stocks are only as good as the properties they own — and some real estate sectors may be better positioned than others.
What is the downside of REITs? ›
Here are some of the main disadvantages of investing in a REIT. Market volatility: Value can fluctuate based on economic and market conditions. Interest rate risk: Changes in interest rates can affect the value of a REIT.
What's the average return on a REIT? ›
Which REIT subgroups have done the best at outperforming stocks?
| REIT SUBGROUP | AVERAGE ANNUAL TOTAL RETURN (1994-2023) |
|---|
| Industrial | 14.4% |
| Residential | 12.7% |
| Health Care | 11.6% |
| Retail | 11.2% |
5 more rowsMar 4, 2024
Best-performing REIT mutual funds: April 2024
| Symbol | Fund name | 1-year return |
|---|
| BRIUX | Baron Real Estate Income R6 | 12.08% |
| JABIX | JHanco*ck Real Estate Securities R6 | 11.07% |
| RRRRX | DWS RREEF Real Estate Securities Instil | 9.26% |
| CSRIX | Cohen & Steers Instl Realty Shares | 9.84% |
1 more rowApr 11, 2024
REITs historically perform well during and after recessions | Pensions & Investments.
"Both public and non-public REIT investments should be considered long-term, and that could mean different things to different folks, but in general, investors who typically invest in REITs look to hold them for a minimum of three years, and some of them could hold them for 10+ years," Jhangiani explained.
How many REITs should I own? ›
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
Do you get monthly income from REITs? ›
For investors seeking a steady stream of monthly income, real estate investment trusts (REITs) that pay dividends on a monthly basis emerge as a compelling financial strategy. In this article, we unravel two REITs that pay monthly dividends and have yields of 6% or more.
How to invest in REITs for beginners? ›
How do I Invest in a REIT? An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).
Can I sell my REIT anytime? ›
Investors can buy and sell shares of public REITs at any time during trading hours. With private REITs, on the other hand, investors may have to wait for a redemption event, which can occur quarterly or annually, before they can cash out their investment. Additionally, private REITs may charge redemption fees.
Is it safe to invest in REITs now? ›
There are three key reasons to invest in listed REITs right now, starting with the fact that REITs have outperformed stocks and bonds when yields and growth move lower. Demand is health while supply is constrained, and REIT valuations relative to the broader equity market are meaningfully below the historical median.
Is it better to invest in REITs or stocks? ›
Because of their lower volatility, REIT returns are less correlated with the stock market. That makes REITs an excellent way for investors to build a diversified portfolio and improve their risk and return profile.
Are REITs riskier than bonds? ›
Stocks and REITs are not guaranteed and have been more volatile than bonds. Stocks provide ownership in corporations that intend to provide growth and/or current income. REITs typically provide high dividends plus the potential for moderate, long-term capital appreciation.
Do REITs beat the market? ›
As a whole, REITs have consistently and repeatedly outperformed stocks and brought in better returns. REITs are less volatile, they bring in a more stable cash flow, and provide a high dividend.
