When building any equity or a fixed-income portfolio, real estate investment trusts (REITs) may serve as a cornerstone that target objectives as lower overall risks, higher total returns, and an impressionable diversification.
An estimate of 87 million Americans own REIT shares because of their appealing ability to potentially counterbalance cash, stocks, or bonds by seeking to produce dividend income and capital appreciation. This begs the question, what is a REIT exactly, and how is all that possible?
What is a Real Estate Investment Trust?
A REIT is a company that seeks to generate income by investing in different types of real estate, though most focus on a specific sector such as commercial properties. Specialty REITs, on the other hand, concentrate their time and funding on a REIT portfolio that includes data centers, apartment complexes, health care facilities, hotels, hotels, and other infrastructure.
A REIT is particularly unique within the real estate landscape as it enables investors to access and buy shares of a legal entity that owns the underlying real estate assets, thereby giving the investor indirect ownership. The shared ownership can then be part of their portfolio, which exposes investors to multiple properties backed by the fund all at once. There are five types of REITs
- Retail REITs
- Residential REITs
- Healthcare REITs
- Office REITs
- Mortgage REITs
Why were REITs Created?
Wealth and power were once measured by the amount of land owned by a family or individual way before the onset of the industrial revolution. This means that only the affluent families and high-income corporations had the means to invest in large-scale real estate plans like shopping malls, medical clinics, recreational parks, and more.
With that in mind, the congress moved forward with a new plan called the Real Estate Investment Trust Act of 1960, which was designed to provide the same opportunities to the average investors and the elite using a share-based model.
What makes REITs Unique From Other Investment Vehicles?
REITs are also required by law to comply with a specific set of operating requirements to be qualified, but what makes it unique from other investment vehicles is that it is necessary to produce at least 75 percent of their gross income from real-estate investments.
Also, you need to invest at least 75 percent of their total assets in real estate, while 90 percent of their income must be distributed from the investment to the investors directly. The out-of-the-box operating requirements make it distinctly a more accessible and affordable way to invest in real estate.
Conclusion: Real Estate Investment Trusts Offers an Accessible Means to Add Real Estate To Investment Portfolios
REITs were designed to provide broad access to a unique asset class to allow high-income investors and your everyday Americans to bridge the gap in the real estate market. By lowering investment minimums and seeking to mitigate risk level, getting your foot in the door of real estate is now easier than ever. To that end, REITs are worth considering in any diversified portfolio.
If you are looking for an advisor with a great deal of experience in real estate investments, get in touch with us to see how we can help.
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