What is a REIT?
If your temperament is such that you prefer a “hands-off” approach to property investing, then Real Estate Investment Trusts (REITs) are perfect for you. When REIT investing, you’ll simply be letting professional real estate managers handle your investments, instead of being a hands-on owner of real estate investments. Of course, you won’t have any say in the operations of the REIT funds, just like when you purchase stock in a publicly-traded corporation.. Like stock investing, you’ll be purchasing shares and the REIT management team will make all the acquisition, management and selling decisions on their portfolio of properties, be they commercial and/or residential real estate. This form of real estate investing is great for anyone that is shy about the illiquid nature of property investing. When you purchase shares of REIT’s, you can buy and sell them at any time, just like shares of stocks or commodities.
If diversification is one of your prime reasons for investing in real estate, then by all means REITs are for you. They’re traded as stocks, and most REITs invest specifically in some niche of the real estate market. Whichever REIT you select, it’s an easy way to get involved in the property investing arena. You can buy and sell your shares on line, the per-share costs are reasonable, and like stocks, you can get in and out quickly, so liquidity is very high.
When you invest in a REIT, you won’t have control over the pieces of real estate that are transacted. Not only that, because of a management team running the REIT, you won’t have to concern yourself with any property management either. In addition, a major difference with owning your own real estate holdings individually, is that you won’t have the right to leverage any of your real estate holdings, as you would when you own your own pieces of individual investment properties. However, on the plus side, risk is much less when you invest in REITs. Also, it doesn’t take much cash to get started. And you can diversify over a number of property types in the process. Of course, the liquidity is one of the greatest draws of REITs relative to actual property ownership.
Different types of REITs
REIT stocks can be either publicly traded companies or privately held. Their real estate holdings are usually well diversified within the niche field of real estate that they serve. Some specialize in office space, some retail malls. Some are dedicated to apartment buildings. Others still base their holdings in more specialized commercial space – warehouses, factories and manufacturing buildings. And then there are some that diversify over all forms of property investment niches all over the world. Some of the best REITs, like Blackstone private equity, Vanguard REIT or The Carlton Group, diversify their real estate holdings over several market niches. They represent some of the largest private equity firms in the world. However, the bottom line for REIT investors is a good yield on their investment. Currently, many REITs are offering yields in the six to eight percent range. One of the key benefits of any REIT is the ability to cash out when needed, just as you would with any stock holding. While not actually owning any investment piece of real estate, you also will avoid all the headaches of managing investment property.
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