Looking to buy investment properties, but want to avoid the Fear Factor?
If the prospect of middle-of-the-night phone calls from tenants announcing a flood in one of your rental units due to a broken water pipe is enough to keep you on the real estate investing sidelines, then consider investing in a REIT, or Real Estate Investment Trust. With a REIT, you never have to encounter tenants with late night emergency calls, or tenants that include the slow-paying or non-paying ones, nor ever have to go through an eviction proceeding with them.
But what you can do is garner the investment upside of the current wave of a boon in the rental real estate market, be it residential rentals, or commercial (office buildings, retail outlets or storage facilities, to name a few possibilities). Look to buy investment properties through one of the many categories of REITs available to the general public.
Public or private?
REITs can be either publicly traded companies, or privately held. Their real estate holdings are usually well diversified within the niche field they serve. Some are primarily vested in shopping centers, others more narrowly defined by apartment houses. But the bottom line for REIT investors is a proper income return on their investment. Right now, many REITs are offering yields in the seven to nine 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. Of course, while not actually owning any investment piece of real estate (and having direct control over it), you also will avoid all the headaches of managing investment property.
Self-storage facility REITs
Some niche property areas within REITs have been doing very well over the past year. As an example, REITs that are heavily invested in self-storage facilities have benefited greatly by the overall foreclosure crisis. As homeowners are forced to walk away from their underwater mortgages, they tend to move in with family, friends, or smaller rental units.
And with usually less space, they have been forced to rent self-storage units for a large number of their possessions. According to the National Association of Real Estate Investment Trusts (NAREIT), this niche of the REIT market showed increases of about 35% in revenues last year.
In addition, apartment-focused REITs have also been doing extremely well, as rental housing prices have climbed and vacancy rates have declined in the past year. Overall, this REIT area has seen increases over 15% in the prior year. So this remains another excellent niche REIT to consider when looking to buy investment property.
Also, new demand for more rental property has been spurring an increase in multi-family home construction. And while population has increased over the last few years, very few new households have been created, due to the housing crisis. So naturally, demand for housing is strong – just not for homeowner purchase.
Other hot REITs
Another hot REIT area are commercial retail malls. This niche is covered by mostly publicly-traded REITs. According to NAREIT, this particular type of REIT showed gains over 20% last year. In addition, other hot REIT areas include health care (hospitals as well as other health care buildings), as well as pre-fabricated homes. The slowest growth area of all types of REITs in the past year has been the lodging/resort niche. This is obvious due to the overall slowdown in the economy, and the tightness of disposable income for most of the population. So hotels will of course tend to be hit hardest in the downturn.
Look for REITs specializing in office buildings to bounce back and offer some of the best yields on your real estate investment dollar during the next couple of years. As the economy slowly picks up steam, and the unemployment rate continues to drop, job demand will naturally create an increased demand for greater office space nationwide.
Letting the pro’s do the work for you
So if you lack the intestinal fortitude to be a hands-on type of property investor, consider REITs in one of their many niches. You can then buy investment property and collect solid yields without the normal strains associated with individual property ownership.
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