The question on whether one should invest on REITs or not is highly subjective. The decision mainly depends on each individual’s aims in the investment, and to a large extent, how much effort they’d like to put into the investment.
Some people don’t consider REITs as a “real estate investment” in a practical, business mindset. For a lot of them, they find directly purchasing and directly getting involved in the properties and the issues it’s involved is what real estate business is all about.
Then again, for people who want to test the waters or for those who’s just getting started on investing, REITs are appealing and could be a viable start to investing.
Why are REITs attractive?
REITs are required to pay at the very least 90% of the taxable income to their shareholders in the form of dividends. The high dividend payouts attract a massive public interest, especially when compared to the stock market.
REITs may also save you time and energy compared to directly buying properties, and the existence of REITs cuts the barrier low when it comes to starting out in real estate investment.
How much does REITs pay?
In general, REITs pay approximately 7% – 15% back to the investors. Compared to the stock market, the percentage share is considerably higher.
Some REITs pay on a quarterly basis, some pay their shareholders monthly. People may see the return of their investment pretty quickly.
However, just as giving your money to a company and generally letting them do all the work, investing in REITs is generally much less profitable compared to owning your own properties and managing them yourself.
Make sure to be informed about the fees associated with everything regarding your investment.
Generally less profitable.
Inform yourself of the company’s history in payouts
Find out their compensation structure, what type of REITs they’re investing in, as well as their track record or the history of the payout itself.
Whether it’s residential, retail, office REITs, healthcare, or other types of REITs, do your homework and research. Find out about their management as well, as the managing team is everything in the success of REITs investment.
You can start low
REITs is created to be as accessible as possible to the average Americans when it was established by Congress in 1960. People who’d like to try investing in real estate may start in REITs to test the waters.
Some companies have a very accessible minimum limit of $2,000 to $4,000. Compared to outright buying your very own property, REITs allow you to start investing in real estates with what funds you have.
Your investment would also be in a form of liquid, and it’s generally easier to sell a share as opposed to selling a property in case you change your mind.
Less effort on your part
Investing in REITs meant you trust a company to do the work for you as opposed to doing the purchasing of properties, the management, the marketing, and everything else to the REITs.
It takes out a lot of responsibilities and work you’d have to undergo such as property maintenance, property improvements, management, and the likes.
Investing in REITs may not be for people who are serious about wanting to do real estate business. Those looking to do full-time doing real estate may not learn much from investing in REITs. However, for those who’d like to test the waters in the real estate industry or those who’d like to start small, REITs may be a pretty viable option for you.