For those who want to invest in commercial real estate but don’t want to buy commercial property, REITs often provide a viable alternative for generating investment income. But what are REITs? How can an individual invest in REITs? And what are some of the things investors should take into consideration before buying in? Let’s take a closer look.
What are REITs?
Real Estate Investment Trusts, or REITs, offer investors the opportunity to purchase shares of real estate income without actually buying property. That means individuals can invest in income-producing real estate such as office buildings, apartment complexes, self-storage businesses, resorts and more. Properties are typically operated as a part of a commercial real estate investment portfolio rather than developed for resale.
Types of REITs
REITs come in a variety of forms, ranging from mortgage REITs to office REITs, to health care REITs, residential REITs, retail REITs and beyond. Each of them can fall into two main categories.
Publicly traded REITs
REITs that are publicly traded on a stock exchange and registered with the are known as publicly traded REITs. Investors can typically purchase common stock, preferred stock or debt security for a publicly traded REIT.
Non-exchange traded REITs
REITs that are not publicly traded can still be registered with the SEC; these are known as non-traded REITs, or non-exchange traded REITs. It’s important to note that non-traded REITs have special considerations and risks including a possible lack of transparency, potential conflicts of interest and a lack of liquidity. Be sure to discuss these considerations with your financial advisor. In addition, non-traded REITs can have high up-front fees as well as sales commissions, which can make up a significant amount of your investment.
What are the possible benefits of REITs?
Investors often like REITs because they provide a way to include real estate in their investment portfolio—with the possibility of increased dividend yields over some other types of investments but without the need to actually purchase commercial property. In addition, in times of low interest rates, REITs can be an attractive income-producing investment that can outpace bonds and other investments. Overall, investors often see REITs as an investment worthy of consideration for any diversified investment portfolio.
REITs: additional, essential details you should know
If you’re interested in REITs, you can invest, with the help of a broker, in publicly traded REITs listed on a major stock exchange. If non-exchange traded REITs are more your speed, you will need to seek out a broker or financial advisor who participates in such offerings. You can also invest by buying shares in an REIT exchange-traded fund or REIT mutual fund. Take care to invest in REITs that are registered with the SEC, to avoid being a victim of fraud.
Investors should know, it is possible to lose money on REITs; do your due diligence and consider consulting with your financial advisor when you are thinking about real estate investing through REITs.