REITs – or “real estate investment trusts” – are a great way for you to own property without forking out giant sums of money or taking on enormous mortgages. As always, consult your financial planner and real estate agent for more information relevant to your specific case, but our content partner has shared the following information. REITS are financial instruments that essentially break up real estate investments into small, bite-sized chunks that you can buy. They then issue you with a regular dividend every year from real-world rents.
It is a good idea for everyone to include REITs in their portfolio because it allows for better diversification. But they can also improve your wealth tremendously by themselves.
REITs are a counterbalance to cash, bonds, stocks and shares – something that you can rely on to provide a steady stream of money, even when the markets are in turmoil.
However, if you plan on putting your money into REITs, you should keep the following in mind:
- Consider An ETF
You can buy REITs yourself directly from the marketplace. But figuring out if you are making the right decision on which product to buy is a challenge. There are so many variables and, often, you don’t know if you are making the right decision.
Another option is to simply buy an ETF that invests in REITs. This way, you can leave the buying side of the equation to the pros and then just benefit from the returns. In a sense, going down the ETF route allows you to become a “dumb” investor.
- Take Note Of Quality
Don’t invest in any old REIT. Instead, learn more about those that offer the highest quality tenants and units. You’ll notice that some REITs have poor occupancy rates or long void periods. You’ll need to avoid these if you want to make a good return.
- Look For Good Management
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REITs are managed by professionals who buy large properties and then divide up the returns between investors, taking a cut for themselves. As somebody looking to purchase REITs, you should do your homework on the management and find out whether they are any good or not.
Managers will often discuss their strategies on their websites. They should provide you with long-term performance reports you can use to judge them. The managers who are most keen to provide you with their statistics are often the best.
- Consider Your Need For Liquidity
Regular property investments are illiquid. It is hard to release cash from them quickly (without offering massive discounts). REITs, on the other hand, are traded on the regular stock exchange, like stocks and shares. So if you decide that you want to liberate your cash, you can often find a buyer quickly, usually within a matter of seconds.
- Factor In Total Returns
Lastly, you’ll want to factor in the total returns that you get from REITs. The dividends that you receive may sometimes seem a little small compared to the rest of the market. But you also have to consider the fact that REITs go up in value as the underlying price of property rises. So you accumulate returns from two sources: yield and appreciation. Both are vital for creating multiple streams for building long-term wealth.