REIT – The right investment for you?

Real Estate Investments Trusts. What do these trusts do? Pros and cons. And, ultimately, is this a good investment to have in your portfolio?

REIT’s were originally put into place by Congress in the 1960’s to allow ordinary people the opportunity to invest in substantial income-producing real estate assets. A REIT is a company that owns, finances, or operates income-producing real estate. Shares of REIT stock allow an investor the opportunity to not only own real estate and earn a share of the income produced, but they allow an individual to bypass getting financing for the purchase of their own property.

In recent years, REIT popularity has grown tremendously and that is in response to a few things in particular. REIT’s are diverse. Whether they are public or private, REIT’s can be made up of a wide variety of assets including hotels, apartments, restaurants, shopping malls and hospitals, just to name a few. REIT’s are also favorable from the perspective that they are required to pay out at least 90 percent of their taxable income in dividends each year. One of the biggest risks to owning property is lack of liquidity and a REIT has reduced that issue with shares.

There are factors that make REIT’s less favorable when compared to other investments. REIT’s do not allow for the hands-on control that a landlord of an income-producing property would have. Giving up their say in decisions could be a downfall for some investors. REIT’s also do not typically grow as fast because 90 percent of their taxable income is paid out every year in dividends. That means that 10 percent is left to invest back into the REIT.

In conclusion, this article was meant to provide some basic information on Real Estate Investment Trusts with the popularity growing over the years. This information is provided solely to serve as basic reading material and is not to be construed as legal or investment advice. Please seek the necessary legal advice if you have further questions on investing.