Data from Trading Economics shows that the homeownership rate in the US sat at 65.6% as of the first quarter of 2024.
A home can be a great financial asset, but if you want to invest in real estate, it's not the only option. Real estate investment trusts (REITs) present an investment opportunity that has become very popular in recent years. But what is a REIT, and should you consider investing in them?
This guide will cover what you need to know. Let's get started.
What Are Real Estate Investment Trusts?
A REIT is a company that owns, operates, or finances income-generating real estate. They generally cover various property sectors.
They allow investors to purchase percentages of a property that they can generate an income from. If you invest in a REIT, you won't need to worry about managing the relevant property yourself.
REIT Benefits
REITs have become increasingly popular among many investors. This is due to the several benefits that they offer.
Accessibility
One of the main benefits of REITs is that many people who can't purchase traditional properties can invest in them. Any kind of property can be very expensive, and many who want to invest simply don't have the funds.
REITs allow you to buy a small percentage of the property, sometimes for as low as around $1,000. For those who don't have a lot of capital to put up, this can present an easy way to enter the real estate market.
Portfolio Diversification
People use a range of investment strategies, but one thing that's common is to build a diverse real estate portfolio. REITs are classified as alternative investments, separating them from traditional investments like:
- Stocks
- Bonds
- Cash assets
Investing in a variety of markets will give you a more diverse portfolio. This can increase your overall income while reducing your risk exposure.
On top of this, as pooled investment, REITs typically have more buying power than individual investors. This makes it easier for them to invest in a diverse range of properties.
Simple Form of Investment
Property investment is often very complicated. Purchasing a property is a big step, and managing real estate isn't easy.
When investing in REITs, things are far more simple. You won't need to manage any properties yourself, and can simply sit back and enjoy the income generated. There's also potential for your investment to increase in value over time, leading to larger distributions.
Tax Efficiency
Some (or all) of the distributions to REIT investors can be classified as Return of Capital or Capital Gains. With this not being classified as standard income, you may pay lower taxes, resulting in a better overall return on investment (ROI).
Should You Invest in REITs?
Any kind of investment decision should be considered carefully whether it's via traditional properties or real estate investment trusts. Look at your goals as well as your current resources to determine the best approach for you.
PMI Oakridge Management is a professional real estate asset management company servicing clients throughout Troy and the surrounding communities. We're a part of the fastest-growing property management company in the US. Our team of experienced realtors can offer expert advice to help you make the best investment decisions.
Take a look at our services page to find out more about how we can help.
