Investing in real estate has always been deemed as a lucrative venture. The price and value of land don’t depreciate, which makes it an ideal investment. Often, though, most people don’t have the financial resources to put in this venture, especially for commercial real estate. That’s where real estate investment trusts come in.
Real estate investment trusts (REITs) are organizations that operate income-generating real estate. Typically, their assets are commercial types, from warehouses to offices, hotels, hospitals, shopping centers, and even apartment buildings. Others call this setup “real estate stock” since anyone can purchase shares in a publicly-traded corporation.
If you’re thinking about investing in REITs, here are some reasons that should convince you to take the leap:
1. Asset Liquidity
Asset liquidity is one of the primary advantages of REITs. You can easily purchase shares of real estate through these organizations and, in the same way, dispense of them through reinvestment or withdrawing a particular amount without difficulty. Moreover, there’s less financial risk involved because you’re putting money in a portfolio of properties instead of just one building.
2. Portfolio Diversity
REITs were formed to pool resources from different people to earn more from commercial real estate. Instead of merely investing as a single entity with limited funds, banding together can increase your profit margin and allow you to put money in varied investments.
A diverse portfolio is beneficial for investors because these assets have different responses to the local and global economy. With this, you can be assured that you won’t lose all your money in case something catastrophic happens that affects a particular investment.
3. Stress-Free Property Ownership
Another benefit of REITs is that you get to enjoy the perks of owning properties without the headaches that accompany managing them. The organization hires property managers to oversee the day-to-day operations of the different buildings and offices such as rent collection, tenant relationship, facilities maintenance, and marketing.
These are the typical landlord problems that you avoid facing when you opt to invest in REITs:
- Tenant Turnovers and Evictions – Whether the issue is renters ending their leases or you have to evict them, the process of terminating a tenant-landlord relationship is a stressful one. Fortunately, you’ll have property managers to handle this part of the process with REITs.
- Rent Collection – Late payments can be frustrating for landlords. Your property managers can also take care of this issue for you since it’s their job to follow up on the tenants, leaving you to focus on more critical aspects of your investing venture.
- Legal Issues – A significant risk when you choose to invest in commercial real estate alone is that you may end up violating a few rules and regulations due to the complexity of the law. With REITs, you are saved from legal troubles because the organization has lawyers and advisors at their disposal to oversee these matters.
- Paperwork – A landlord’s job doesn’t only include collecting rent and making sure that the facilities are functioning well. There are lots of paperwork involved and, if you aren’t careful, they can easily get mixed up and disorganized. Again, save yourself from the headache of property management by investing with REITs.
4. Full Dividend Control
When you put money in equity stocks, you turn over the decision-making process to a professional portfolio manager. You won’t be able to choose if you want to pay dividends or reinvest the profits you gained back to the company.
However, with REITs, you have full control of your investments. You get to decide if you want to buy more stocks with your profits or use the dividends to go on vacation or invest in other assets. Moreover, REITs can shield you from real estate scams since they know where to invest your funds.
5. Low Volatility and Correlation
Share prices of REITs have lower volatility compared to equity stocks due to predictable rental income and management costs. Analysts can forecast the performance of these assets without difficulty and accurately, thus reducing share price volatility.
Plus, REIT stocks have a low correlation with other assets concerning performance. This means that they aren’t affected significantly when another asset class, such as equity funds, goes down. They may even perform better and balance out your portfolio if you have a diverse one.
REITs are an ideal setup for people who want to invest in commercial real estate without putting in too much effort in understanding the legal matters and paperwork involved in this area. This arrangement offers you asset liquidity, portfolio diversity, stress-free property ownership, and full dividend control. Moreover, the stocks are low volatility and have less correlation with other asset classes.