A real estate investment trust, or REIT, is a company that owns and manages a portfolio of real estate. They’re a popular investment for investors who want to diversify their holdings or earn income from real estate without actually having to invest in the properties themselves.
REITs may be public or private, traded or non-traded, and specialize in a particular property type such as apartments or office space. They also may be diversified in their assets and be structured to distribute at least 90% of their income in the form of dividends to shareholders.
They’re generally a safe, tax-efficient way to make investments in the real estate sector. They’re typically regulated by the Securities and Exchange Commission (SEC), and are subject to regular audits.
Many people buy shares of REITs through their 401(k) plans, Individual Retirement Accounts (IRAs), or pension funds. However, you can purchase them in a brokerage account as well.
The key is to choose a REIT that matches your investment goals. You should also consider the company’s financial condition and its investment strategy.
When choosing a REIT, look for one with a strong track record of paying dividends. Dividends are often higher than the return you’d get from other stocks, and they can be taxed as income.
Despite the high yields, REITs can also be volatile, depending on their underlying properties and market trends. Some REITs specialize in certain categories of property, such as senior housing communities or medical office buildings, which can be susceptible to changes in health care policy and demand.
You can find out more about REITs by searching the SEC’s EDGAR database. You can also read an offering prospectus and review a REIT’s annual and quarterly reports.
These documents can help you determine if a REIT’s dividends are reinvestable, and if they pay out enough to cover their expenses. Additionally, you should know whether the REIT has any significant debt and is able to generate consistent cash flow for its investments.
REITs are not as liquid as stocks and bonds, but they can still be a good way to add real estate to your portfolio. They’re usually traded on public exchanges, which makes them easy to buy and sell.
Moreover, REITs have historically provided higher returns than stocks during periods of market volatility. In fact, total returns of REITs have beaten the S&P 500 index for 20 years.
If you’re a beginner, a low-risk way to invest in REITs is through mutual funds or ETFs that include a large number of REITs. These funds can be purchased at most brokerages and are a convenient way to diversify your portfolio without having to do the research yourself.
You can also find a wide variety of REITs on the National Association of Real Estate Investment Trusts website, where you can filter them by filing status, returns and sub-sector. The NAREIT site also lets you compare a REIT’s financial performance to others in its industry.
REITs are a great way to grow your investment portfolio while keeping it diversified and tax-efficient. In addition, they offer attractive risk-adjusted returns and stable cash flow. And because they’re not tied to the stock market, they can also bolster your portfolio during periods of economic uncertainty.