What are REITs and why should you invest in them? That is the question we will be answering with this article. I want to provide you with the 5 Reasons Why You Should Invest in REITs.
REITs are a great investment tool for your portfolio. I’ve personally started to get into buying REITs recently. I was interested in getting into real estate but didn’t have the capital to get any property myself.
If you are not familiar with REITs here’s a quick definition:
A REIT is a company that owns, operates, or finances income-producing real estate. REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries. They are similar to ETFs but for real estate.
Below are 5 Reasons Why You Should Invest in REITs:
As I said before REITs can be a good investment for a variety of reasons. The rich dividend payout they offer is one of them. REITs have a high-dividend yield. They have a higher distribution ratio compared to other asset classes. Not all REITs are good and you will have to do your own due diligence before buying any REITs. But, they are still more generous overall than any of the stocks in other sectors.
One of the pluses for REITs is the reliable income that comes along with it. REITs for the past 15 to 20 years have been highly attractive to income investors. Rising rental income rising over time, which generally leads to increased payouts has made REITs even more attractive.
Dividend stocks offer some of the same income advantages as REITs. The real-estate exposure that REITs offer moves in patterns that don’t exactly match up with the economy as a whole.
REITs Diversification and Liquidity
REITs not only have superior dividend yield and tax advantages, but they also offer diversification and liquidity. And because I am not considered in the wealthy class, yet, REITs have helped me out quite a bit.
These REITs also offer incredible liquidity that you just can’t get from purchasing a property. Sure you have “house flippers”, who manage to turn a profit from holding a home for a few months. However, the practical investor looks farther down the road. REITs are also a great way to participate in real estate investing without having to hold physical property. Especially if you don’t have the capital to own property for yourself.
Strong Outlook for Commercial Real Estate
When the economy is strong, commercial real estate tends to follow. For example, when the economy is strong, business expands. Which allows property managers to raise the rent. That’s a good thing if you own REITs. You will have more robust rental rates, and there will also be a decrease in the vacancy rates. Which helps raise the price of the REITs and could pay out a higher dividend rate.
The economy was very strong in 2017, with low unemployment and good business expansion. This trend from my eyes looks like this trend will continue into the next few years. The stronger the economy, the better for REITs.
Why Should I invest in REITs? High Predictability and Stability
Since the 1940s, the stock market has gone up year over year in the long run. But if you look short term it gets a little less predictable. There are many factors that affect the performance of the stock market. Some of which include the performance of individual company earnings, the political outlook, regulation, etc.
Real estate, on the other hand, has much greater predictability. Rents in a given set of leases are for the most part stable, so they provide predictability. REIT asset managers can generally predict performance both in the short and long term. Because performance is predictable, it is also more stable than the stock market in general.
I would like to leave you with a few takeaways. REITs are a very complicated market, that I have just simplified for you here, to make it easier to understand. Diversifying your portfolio in various things is always a good idea, it helps hedge your bets from riskier assets. When looking to invest in REITs it’s always good to do your due diligence, each investment opportunity is different. So, do your research, stay alert, and always look for the trends. Continue to educate yourself on what is going on in your world. That way you are always making the decision that will set you up down the road.
Hopefully, this was helpful to you understand why you should invest in REITs. Any thoughts, comments, or anything I missed, feel free to comment below.
If you are looking for other investment articles check out my other two articles here and here.