What are Real Estate Investment Trusts? (REITs) and are they better than physical real estate? Today we're going to go over what a REIT is, the benefits and risks of REITs, and we'll also go over what to look for in a REIT when it comes to adding it to your portfolio.
NAREIT Website: www.reit.com/
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Timestamps:
0:00 - Start Here
0:58 - Subscriber Shout Out
1:30 - What are REITs?
3:30 - Benefits of REITs
5:55 - Risks of REITs
8:15 - How to Anaylze REITs
What are REITS?
- A real estate investment trust: a company that owns a portfolio of commercial real estate. These are usually traded on the market so that means you can buy shares of them, just like buying stock in a company. So you can buy shares of a REIT and that entitles you to ownership benefits - one of which is dividend based income. And this is super powerful because REITS are required to pay 90% of their income back to their shareholders, aka you, as dividends.
- Owning a REIT also means you don't need to own any physical real estate, you can just buy shares of a REIT and get exposure to the popular real estate asset class - and this my friends is exactly how you can own real estate without having a crazy amount of money that you would need for a down payment on a physical property.
Benefits:
- Dividend Based Income
- Diversification
- Low Cost To Buy In
- Liquidity
Risks:
- Property Specific Risks
- Dividend Taxation
- Appreciation Might Be Limited
REITS have specific metrics that you can research to gauge the profitability of that REIT.
Those metrics include:
- Fund from Operations (FFO) and Net Operating Income.
- You can also look at the occupancy levels and the rent per square foot.
If you look at enough of these press releases from different REITs, you'll be able to get context for how to compare and contrast different REITs in the category you're looking for**.
Now admittedly, that's a bit too time consuming for me personally, and if I'm looking to invest in a REIT, what I would rather do is to invest in a REIT ETF.
You guys may know that an ETF invests in a lot of different stocks, so instead of picking one REIT, you can just invest in the REIT ETF that invests in hundreds of different REITS, thereby increasing your diversification.
VNQ is an example by Vanguard, they own 174+ different publicly traded REITs and real estate related investments.(investor.vanguard.com/etf/pro..., by buying a REIT ETF like this one, or any other REIT ETF, you're getting exposure to multiple REITS and diversifying your risk a bit.
Now overall, I think REITs are best as long term investments because there will be a lot of factors that influence a REITs price over the short term, such as interest rate hikes, and different economic sectors that can be influenced.
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PS: I am not a Financial Advisor, any investment commentary are my opinions only. Some of the links in this description are affiliate links that I do receive a commission for.
17 июл 2024
