Historically, REITs have generated competitive total returns, based on high and consistent dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase profitability. REITs allow investors to diversify their portfolios in the commercial real estate market, helping to reduce their correlation with the stock and bond markets. This diversification helps reduce an investor's risk profile without negatively affecting profitability.
Investing in REITs can be a passive, income-generating alternative to buying property outright. However, investors should not be carried away by large dividend payments, as REITs may underperform the market in an environment of rising interest rates. Real estate investment trusts (REITs) offer investors a way to insulate their portfolios against rampant inflation. That's why real estate sponsors can make decisions that don't always benefit their investors.
While direct real estate investment is sometimes better, such as if you live in a booming local market, the performance of REITs is usually the best. These companies own and operate real estate properties, as well as mortgages on commercial properties in their portfolio. Congress created real estate investment trusts in 1960 as a way for individual investors to hold equity stakes in large-scale real estate companies, just as they could own stakes in other businesses. Overall, these trends show us that investing in real estate and, more specifically, owning rental properties that generate income, is still a good investment strategy.
That is, financing a residential or commercial real estate property with a loan and acting as an owner. According to Hoya Capital, demand for industrial real estate is insatiable due to supply chain disruptions and the growth of e-commerce. For as little as the price of a share, you can buy a portion of a REIT that has a portfolio of revenue-generating real estate assets. Many brokerage firms offer these funds, and investing in them requires less fieldwork than researching individual REITs for investment.
A REIT is an investment firm designed so that 75% of the corporation's assets are invested in real estate, cash, or treasury. Instead, they can be purchased from a broker who participates in non-negotiated public offerings, such as online real estate broker Fundrise. This can be a bad sign for retail REITS, demonstrating that diversity within a real estate sector might not protect it from a declining asset. Selling and leasing their real estate to Essential Properties allows companies to raise capital to reinvest their core operations.
By adhering to these rules, REITs do not have to pay taxes at the corporate level, allowing them to finance real estate at a cheaper price than companies that are not. While not the fastest growing data center real estate investment trust, Digital Realty is one of the best REITs when it comes to profitability.