But what is a REIT? Those letters stand for real estate investment trust, and this investment asset works the same way as a stock. Like a stock, you can invest in a REIT on a major stock exchange, but the difference is that the REIT invests directly in real estate, sometimes through property and sometimes through mortgages. This makes investors a relatively simple way to add real estate assets to their portfolio, and there are also some tax advantages to consider. Real estate investment trusts (REITs) are a key consideration when building any equity or fixed-income portfolio.
Investors seeking exposure to real estate can look for investment properties to buy and rent, or they can buy shares in a real estate investment trust (REIT). In a poor economy, retail REITs with significant cash positions will have opportunities to buy good real estate at difficult prices. When it comes to investing in REITs, you can invest in companies individually, through a publicly traded fund or with an investment fund. It also offers you diversification, as REITs typically own more than one real estate asset and several quality assets.
When considering an investment in retail real estate, one must first examine the retail industry itself. Although mortgage payments must be made on the amount financed, a smart real estate investor earns enough money in rental income to cover the mortgage, with the leftover money as a benefit. For example, if a person invests in a REIT that is specifically a portfolio of frozen yogurt stores in shopping malls, they could see that their investment suffers if frozen yogurt or strip malls go out of style. Investing in other types of real estate, such as healthcare facilities or retail, is a great way to protect yourself against a recession.
While developing and operating a real estate company is outside the realm of reality for some, REITs make it possible for individuals to become investors in large-scale construction or other real estate projects. When an investor buys mortgage REITs, they invest in mortgage and mortgage-backed securities that, in turn, invest in commercial and residential projects. When a person invests in a REIT, they are investing in a real estate company that owns and operates anything from shopping malls, office complexes, warehouses, apartment buildings, mortgages, and more. The federal government made it possible for investors to purchase large-scale commercial real estate projects as early as 1960.
In addition, while rental properties are potentially lucrative investments, they can be very illiquid, especially when the housing market becomes weak.