Last Updated on April 10, 2021 by John Fischer
If you are fascinated by the potential of investing in real estate but don’t have the time, resources, or knowledge to begin on your own, then Real Estate Investment Trusts are the way to go. Today we will look at the advantages of investing in a REIT.
Easier to Manage
REITs make it so that an ordinary investor can own real estate without dealing with the headaches that come with it. REITs have tenured professionals that manage your investments and deal with renters. Normally, REIT management takes care of rent collection, maintenance of facilities, marketing, and tenant management. All an investor needs to do is collect their dividends.
There is a much higher chance of receiving dividends by investing in Real Estate Investment Funds (REITs). This is because the management of such companies decides to pay out dividends or reinvest the money into the company. On the flip side, most REITs distribute about 90 per cent of their returns to the investors. The investor can then decide to reinvest that money for buying more shares or taking it out for personal expenses. Moreover, the dividends you receive are stable and can increase if the rent of the properties goes up. Likewise, an increase in the value of the properties also increases the share price.
Appreciation in the Long Term
Although the extent of increase in share prices for REITs is not as big as those of equity stocks in well-performing markets, REITs have grown steadily over the years due to appreciation in the commercial real estate value. The price of REIT shares also does not shift as often as equity stocks when it comes to factors such as interest rates and inflation.
Lower Correlation and Volatility
The volatility of REIT shares is much less than that of equity stocks. This is because the REITs’ expenses and rental income are much easier to predict in the short and long run. Analysts have a much higher success rate when forecasting REITs’ performance compared to equity stocks due to stability in rental income. This lessens the volatility in share price.
Investing in REITs is also an excellent option for those looking to diversify their portfolios. This is because they have a lower correlation to types of assets. An easier explanation is that REITs are not affected the same way as equity stocks to changes in the stock market or other industries. They possess more stability, faring better when other stocks are struggling.
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