A Real Estate Investment Trust, also known as a REIT, is comparable to that of a mutual fund. This is because REITs allow both small and large investors to invest in real estate through property or mortgages and even through trades, enabling the investors to enjoy the income from those properties. REITs act as means in which retail investors, such as you and I, can acquire ownership in real estate, own and even in certain cases operate commercial properties such as hotels, hospitals, and apartment complexes just to name a few.
A great benefit and also an attraction to REITs include their high yields and security/safety, because dividends are secured by stable rents from long term leases. What also makes REITs super advantageous is the majority of all income MUST be paid out to shareholders on an annual basis; this results in a higher than average dividend sometimes reaching 8-10%. Additionally, unlike most partnerships, there is a simple tax treatment when it comes to this investment. Moreover, instead of buying or selling property directly, which would take more money and effort to liquidate, REIT shares are bought and sold on a stock exchange just like an ETF or individual stock. What caught my attention in regards to REITs is that they have little correlation with the S&P 500 so adding REITs to a diversified investment portfolio can reduce risks, and increase returns.
Types of REITs
There are several types of REITs which include retail which are investments in commercial properties such as shopping malls and represent the biggest investment types in America. Money is made from the rent charged from tenants. There’s also residential, which are those REITs that own and or operate rental apartment buildings and also manufacturing housing. Additionally, there are office REITs, which are investments in office buildings and income is received from tenants who have signed long term leases. Mortgage REITs are an additional type, which opposed to the real estate itself, are investments in mortgages.
After doing some research I believe investing in the healthcare sector, specifically Healthcare REITs, would be a crucial investment long term. This type of REIT has proved to be the most beneficial and interesting class as healthcare costs continue to rise and Americans age. The focus of these investments are on healthcare operations such as that of the real estate in hospitals, nursing/ retirement homes, and medical centers. It is my opinion that our investment should be in this type of REIT as it is an industry that will only get bigger naturally and one that is already quite large. If you think about it, there will always be a need in this industry. Per my research, in a few different Healthcare REITs, there has been an annual rise in dividends making it an attractive based REIT.
Author: John Onuigbo Jr., MBA
Todd Capital Investment Club