A Real Estate Investment Trust (REIT) is a company that owns and operates income-producing real estate, such as apartments, shopping centers, office buildings, and hotel properties. REITs are typically publicly traded on a stock exchange, giving investors access to professionally managed, diversified commercial real estate portfolios. Investing in a REIT provides the investor with the potential to receive regular cash flow and capital appreciation.

Depending on the structure, REITs can generate revenue from rents, sales, and mortgage interest. REITs generally fall into three categories:

1. Equity REITs own and manage income-producing properties and generate income from rents

2. Mortgage REITs invest in mortgages and mortgage-backed securities and earn interest on their investments

3. Hybrid REITs are those that use both equity and mortgage REIT investment strategies

REITs may also engage in development activities with the intent of adding a property to the REIT’s portfolio when development is completed and then operating it along with its other properties. To protect investors, REITs are subject to both federal and state law. In addition, all REITs must distribute at least 90% of their taxable income to shareholders each year.

The benefits of investing in REITs include the fact that REITs are a more efficient method of investing in real estate. Publicly-traded REITs are more liquid than private real estate investments, allowing investors to buy or sell their shares more easily. REITs can offer an income stream in the form of dividends, as well as potential capital appreciation. Risks to consider when investing in REITs include, but are not limited to, leverage, interest rate, and market risk.

To be eligible for a REIT designation, a company must invest at least 75% of its assets in real estate, and at least 75% of its income must come from real estate-related assets. Additionally, at least 100 shareholders must own the company, with no one investor holding more than 50% of the shares. These requirements ensure that REITs actively invest in real estate and distribute income back to their shareholders.

Investing in REITs can provide investors with diversification benefits. Commercial real estate is the third largest asset class in the world. And with a low correlation to stocks and bonds, many investors can reduce portfolio volatility and improve risk-adjusted returns by allocating to real estate. REITs are a very efficient way to achieve that objective. Few would dispute the popularity of REITs. Industry trade association NAREIT estimates 150 Americans, or 45% of U.S. households, are invested in REIT stocks.

REITs may be an attractive option for investors looking to diversify their portfolios and access the potential returns of real estate without incurring the large upfront cost that direct ownership would require. In addition, they offer investors an alternative source of income potential. 

If you’d like to learn more about REITs or other real estate investment strategies call us at 916-347-9267 or schedule a call with us here at your convenience. 

Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommendation to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

All opinions expressed herein constitute the author’s judgement as of the date of this article and are subject to change without notice. Statements made are not facts, including statements regarding trends, market conditions and the experience or expertise of Bangerter Financial are based on current expectations, estimates, opinions and/or beliefs of Bangerter Financial. Such statements are not facts and involve known and unknown risks, uncertainties, and other factors. Past events and trends do not predict or guarantee or indicate future events or results.

A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. There are risks associated with these types of investments and include but are not limited to the following: Typically, no secondary market exists for the security listed above. Potential difficulty discerning between routine interest payments and principal repayment. Redemption price of a REIT may be worth more or less than the original price paid. Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes. This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus.

Investment advisory services offered through Bangerter Financial Services, Inc. A state Registered Investment Advisor. Registered Representative and securities offered through Concorde Investment Services, Inc. (CIS), member FINRA/SIPC. Bangerter Financial Services, Inc. is independent of CIS.