5 Things to Know About REITs
Think back to the last time you played Monopoly. You probably bought a bunch of different properties, made some money anytime someone landed on your space and hopefully only got into a brief shouting match with your sibling.
Real estate investment trusts or REITs are somewhat similar (without the shouting). They’re different from real estate trusts because they’re actually a form of investing, similar to stocks. Take a look at the top 5 things to know about this type of trust (and how you could even turn a profit from it).
#1 Virtually anyone can invest in REITs.
A REIT is “a company that owns, operates or finances income-producing real estate,” according to Nareit. Just like you would invest in another industry or purchase stocks through a mutual fund or ETF, you can do the same with a REIT. Many people use their 401k to invest in this type of stock.
#2 REIT investing is pretty solid in the long run…
While any investment comes with risks, REITs are pretty solid. Investopedia describes them as “one of the best-performing asset classes… Between 1990 and 2010, the index’s average annual return was 9.9%, second only to mid-cap stocks.”
#3 …but it’s anything but steady.
Bonds, CDs, a regular old FDIC-backed savings account — REITs are nothing like these. Expect drastic rises and falls and it’s not something you want to “get rich quick” from. REIT investing is often recommended to diversify your portfolio.
#4 There are 5 types of REITs you can invest in.
You have five options with where to invest your money.
Residential: These REITs cover apartment complexes and manufactured houses, most often found in big cities where renting is common.
Retail: This goes towards malls or other shopping centers. This specific type of REIT generates income from renting out spaces to retailers.
Office: Just as it sounds, this type of REIT deals with commercial office spaces.
Healthcare: Hospitals, nursing facilities, retirement homes, clinics, or other medical centers.
Mortgage: Freddie Mac and Fannie Mae are two of the most well-known mortgages that this type of REIT goes towards.
Just like you weigh out your options in Monopoly for the best property to buy, you want to do the same for REIT investing. For example, retail and office investing might not be the safest choice in the middle of a recession and subsequent period of high unemployment. However, you can also buy a mutual fund or ETF that does all the research and investing for you.
#5 You can invest both individually and internationally.
As globalization continues, international REITs continue to grow in popularity (though it’s good to note that this is more recent, so we don’t have a ton of data for long-term success). You can also invest through a mutual fund, like a stock. Vanguard actually offers an index fund.
One thing to keep in mind: non-traded REITs have a lower return than those that are publicly traded. Again, it pays to do your research (or find a professional who can).
It’s not Monopoly, but it could make a real-life difference in your finances. REIT investing, like owning rental properties, commercial properties or vacation rentals, is another way to continue growing your portfolio.