Real estate investment trusts, or REITs, are companies that own and manage groups of properties. They can range from anything, including apartment buildings to malls or other retail spaces. Unlike most real estate investments, investing in a REIT offers the security of an established corporation while still giving you access to income-producing real estate.

Benefits for investing in a REIT

There are several benefits for investing in a REIT over property management firms such as Graham and Co., concentrating on commercial real estate. The first benefit is liquidity: As soon as you buy into a REIT’s stock, you can sell it just like any publicly traded company with no penalties or extra fees attached. Another is diversification: Instead of having your money tied up in one property and worrying that it might not be doing well or that you might have to deal with tenants, a REIT gives you exposure to dozens of properties all across the country.

The final benefit is income:

Most publicly traded companies pay dividends quarterly and often give special dividends around holidays. Since most REITs are in the business of owning real estate, they can afford to give much larger dividends than any other company.

Disadvantages to investing in a REIT

Despite these obvious benefits, there are disadvantages to investing in a REIT as well. When compared with buying your property, investing in a REIT has many drawbacks. For one thing, no sense of pride comes from knowing that you bought the building where you live; instead, you own part of someone else’s building, and the only way you can see it is on your statement.

Another drawback

Another drawback is that there isn’t any additional income from subletting units, unlike owning a multiple-unit dwelling or an apartment building. Most people who invest in REITs are looking to be paid quarterly dividends and don’t want to deal with tenants unless there’s something wrong with the place they bought into. So they’ll likely rent out any units that come available to new tenants rather than trying to find someone already having a lease with them. This means much lower chances of getting money back on your initial investment even if the property appreciates.

Safest investments

Finally, many people think of real estate as one of the safest investments to make. Many people try to keep money in the bank until they “have enough” to invest somewhere, but once you have enough for a down payment on the property, why hold it back? The fact is that real estate goes up significantly faster than inflation and most other investments, so there’s no reason not to jump right in. If anything at all is holding you back from buying an apartment building or house or even your own small business, then investing in a REIT is worth looking into.

Investment decision

However, as with any investment decision, it’s important to do your research carefully before you take the plunge. Investigate what properties are being invested in by your target company, as well as whether they’re taking out new loans or selling some of their properties to pay dividends. You want to make sure that the REIT’s business model is sound and that they aren’t about to go bankrupt or stop paying dividends, and this will take a little time and effort on your part before you invest.

Real estate investment trusts may not be for everyone, but they present many opportunities for investors and renters alike. So the question arise is real estate investment trusts a good career path? With good upkeep by the company managing their properties, you can end up with steady dividends while also having access to great real estate locations should you ever decide you need them. 

Should I Invest in real estate?

Real estate investment trusts (REITs) are a type of security that invests in real estate and derives most of its value from that real estate. REITs were introduced in the United States by Congress in 1960 as part of the equally controversial Revenue Act and expanded upon slightly in 1996 with the Small Business Job Protection Act. As such, there’s no one way to invest in them; you can purchase shares directly through your broker or online trading service, or you can invest through mutual funds, which own shares of dozens if not hundreds of different companies.

One commonly cited benefit to investing in a REIT is liquidity: it’s much easier to sell your shares than it would be to find a buyer for a building, for example. Additionally, given the nature of real estate as an inflation-proof commodity, it is often viewed as a safe investment that will never lose its value.

On the other hand, there are also some drawbacks to real estate investment trusts that you should keep in mind. Among them is that they’re highly illiquid, meaning that you probably won’t be able to access your money for years at a time; this would be especially true if you purchased shares directly rather than through a mutual fund. Some REITs even impose penalties on early withdrawals or charge extra fees for selling more frequently than every six months or year (although these aren’t quite as common).

Conclusion

REITs can present a chance for investors to invest in real estate without going out and buying their buildings. However, this convenience comes at a price: REITs don’t offer as much liquidity as other securities, so it might be hard to get your money back if you suddenly need it.