According to REIT.com, Congress created the investment opportunity in 1960 to make investments in large-scale, income-producing real estate accessible to average investors. Congress decided that a way for average investors to invest in large-scale commercial properties was the same way they invest in other industries — through the purchase of equity.
Here are three important things that you must know about this kind of investment:
- REITs own or rent various types of real estate such as hospitals, offices, shopping malls, warehouses and storage centers, dormitories, apartments, hotels, and condominiums to name some. They sell shares of stocks for these properties and their investors get a share of their income. These companies are required by law to distribute all their taxable income as dividends of their investors, so the shareholders are the ones who pay for this income. Investors usually receive bigger shares investing in REITs compared to investing in other companies.
- REITs are supported by the government and are considered a way to give all individuals a chance to earn income through investing. There is no limit to the amount of investment, so anyone who wants to invest in REIT can buy shares of stocks from the company and they can have a diverse portfolio covering shares of stocks for apartments, shopping malls, nursing homes, or whichever properties they are interested in. As a result, the share holders get a cut in the income of the properties without buying one. Because they can have shares in several corporations of the REITs, the amount that’s invested is safe. Even if one corporation fails, they continue to earn from the other properties owned by the REIT.
- Stocks of REITS are publicly sold through the stock market but some are non-listed or private so they can only be purchased from the companies owning or renting the properties. There is no minimum amount required when buying stocks, so small-time investors can easily buy several shares. Investors can put their money in equity REITs or mortgage REITs. Equity REITs earn income from rentals or sale of properties that they owned long-term, while mortgage REITs earn income interest of mortgages to which they are tied in.
Investing in REITs brings several advantages — these include high dividends, diverse portfolio, and a steady and stable source of income because rentals go up when prices are high. Aside from the dividends, long-term capital has the possibility to appreciate modestly through time.