Investing in real estate is often considered a solid way to generate income and build wealth - and it’s safe to say you’ve seen the real estate “moguls” try to influence you to invest in it.
Let’s dive into the world of real estate investing through REITs, so you can figure out if investing in real estate without the hassle is worth it.
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate in various sectors such as residential, commercial, and industrial.
REITs provide individual investors with an opportunity to invest in large-scale real estate projects without buying and managing properties themselves.
Typically, when you think of investing in real estate, you’re likely thinking of rental properties or Airbnb’s but REITs are very different.
There are primarily three types of REITs:
REITs pool money from multiple investors to buy and manage real estate assets. They are similar to mutual funds in structure and operate under a strict regulatory framework.
Some of the most popular and largest REITs are managed by Prologis, Public Storage, Simon Property Group, and Starwood Property Trust - these REITs may even own some of the places you’ve been to like apartments, office buildings, shopping malls, and industrial properties.
One key feature of REITs is their tax structure. REITs are required to distribute at least 90% of their taxable income to shareholders, which means they pay little to no corporate income tax.
If they fail to distribute at least 90% of their taxable income, they risk losing their REIT status! The REIT tax structure is designed to encourage REITs to distribute income to their shareholders and to discourage them from engaging in certain activities.
Investing in REITs is similar to investing in stocks. They are traded on major exchanges, and you can buy them through a broker.
REITs are a growing industry with several key players that dominate the market.
Quick Fact: Blackstone manages more than $66 billion in real estate assets.
Like any investment, REITs come with their own set of risks and rewards.
It’s crucial to diversify your investments, which include your REITs. You can diversify REIT investments across different sectors and geographic locations to mitigate risks.
Like any investment, you’ll be taxed when you sell a REIT or receive a dividend.
It’s crucial to diversify your REIT investments across different sectors and geographic locations to mitigate risks.
With changing demographics and technological advancements, the REIT industry is poised for potential growth. Sectors like data centers and senior living facilities are emerging as new investment avenues for REITs because of the potential they have.
The truth is… it depends. With any investment, there are risks associated. The answer to that question is dependent on multiple factors like your own interests in real estate, your financial picture, your investment goals, risk tolerance, and more.
If you’re interested in investing in real estate, REITs are one of several options that check this box, but make sure you ask a financial advisor if you have any questions.