REIT’s, short for Real Estate Investment Trust, are securities that invest in real estate.
This vehicle is a much less capital intensive than buying a building for appreciation or rental revenue.
Both large and small investments are accommodated by the diverse REIT market from malls to cloud based data centers.
A recent trend has companies spinning off land assets into REIT’s to cash in such as Sears Holdings. While the corporation struggled with significant operating losses, value was created and unlocked in the development of an equity REIT.
The REIT trades like a security or mutual fund on a public market providing liquidity in an illiquid real estate market.
The rules for a REIT are simple:
1) 75 % of total assets are invested in real estate
2) 75% of gross income comes from rents
3) 90% of income is paid as dividends each year
Individual investors can invest in real estate holdings without having to go out and buy expensive property. Equity REIT’s make money from rent or sale of property in their portfolio.
Advantages of REIT’s include property type diversification and a low correlation to equity markets as real estate has real tangible value. Stocks are subject to short term emotional actions and reaction to global events.
Dividend payments in REIT’s can provide stable cash flow as a pass through from the rental income. The rent payments are distributed to shareholders providing a regular revenue stream.
Buying or selling an exchange trade REIT is easy just like entering or exiting a stock position. That transparency and liquidity of an exchange listing is a critical attribute of listed REIT’s.
As property prices and rent rates rise, REIT’s yield and performance can significantly outpace conventional stocks dividend payments.
Give a REIT a shot, you never know, it might be the right investment vehicle for you.
