Interested in Investing in REITs?

In an ideal world, everyone’s investment portfolio would contain some real estate.

Unfortunately, that’s not really likely, as cost barriers for buying a property are too high for most. Likewise, owning property also isn’t for everyone, even if they have the means. Some people aren’t too hot on the idea of settling down in one place for the immediate future and then being burdened with a property that takes time to eventually sell.

For all those people who can’t, or don’t want to, own a property, there are Real Estate Investment Trusts.

REITs can be bought on the stock market as if they were shares of Apple or General Electric. They’re companies that own income-producing real estate, so by investing in them, you’re investing in the real estate market. When the real estate market is high, shares will likely rise. The opposite will happen if the real estate market starts to decline, however.

All types of real estate are available to invest in, from retail to office to apartments. In essence, an REIT offers the ability to invest in the real estate market without physically owning the property. You can sell at any time and, mercifully, won’t ever have to deal with a real estate agent. You’ll have exposure to the ups and downs of real estate industry without having to pay property taxes or maintenance costs.

Historical Returns of REITs

REITs are a great component for anyone interested in diversifying their investment portfolio without having to drop hundreds of thousands of dollars on a physical property. They’re steady and fairly safe investments, despite the housing bubble that burst back in 2007.

Those were lean years for REITs, having lost 17 percent of their value in 2007 and an additional 38 percent in 2008. Historically, U.S. REITs have had an impressive 11 percent return over the past 15 years. Over ten years, the average gains are a respectable seven percent. With those returns, REITs prove to be a worthy investment for anyone’s portfolio.

Different Types of REITs

There are several different types of REITs, not to mention many individual REITs within those categories. All told, nearly 200 REITs are listed on the New York Stock Exchange. Like actual house hunting, it’s all a little daunting at first to find one that’s the best fit. The two most common that you’ll see are the Equity REITs and the Mortgage REITs.

Equity REITs are based directly on property and its assets. This would mean that the money generated by a shopping mall from rent-paying retailers or an office building from tenants is regarded as equity.

Mortgage REITs generate earnings through the mortgages that property owners pay. Money is generated by the interest on the mortgage. These are less common than equity REITs, and are arguably less tangible.

The Simpler Route to REIT Investing

If you can’t really decide which REITs works best for you, why not invest in a lot of them?

REIT mutual funds and index funds are made up of a broad swath of individual REITs, so you’ll limit risk and ensure that your money is spread to different REITs. All the big financial companies, from Vanguard to Fidelity, offer their own real estate funds.

Many of these funds also contain real estate-related companies, like Gladstone Commercial, in addition to REITs, so check the makeup of each one to see which fund makes the best fit. Also, make sure to check the fees of the funds so you don’t see any of your gains needlessly erased over time.