What Does REIT Stand for?

What does REIT stand for?

Individual investors are on a journey to find the best portfolio mix, and therefore, in this search, they are likely to come across REIT investments. What is a REIT, what does it stand for, and how can you integrate it into your investment portfolio?

Disclaimer: This blog contains general advice about REITs. To get up-to-date information and advice on how to invest in REITs with your unique financial profile, please consult an investment advisor.

What the Acronym REIT Stands for

REIT stands for:

• Real

• Estate

• Investment

• Trust

This is an investment option that the federal government made in the 1960s. Real Estate Investment Trusts (REITs) were created to give everyone a chance to earn realty income through commercial real estate ownership. People who invest in REITs can potentially get payouts when the property does well.

What is a REIT?

A REIT is a company that owns income-producing real estate. Namely, a REIT leases a commercial property, collects rent, then gives that income back to shareholders in the form of a dividend yield.

When you invest in real estate investment trusts, you get some of the proceeds through dividends based on their current stock price. most of these stocks should be accessible through the New York Stock Exchange (NYSE). There are three main types of REITs:

• Equity REITs: These real estate companies own commercial real estate properties and provide dividends to shareholders when the right conditions are met. These have lower dividends but less risk than the other types of REITs. The type of properties owned can be multifamily buildings, shopping centers, shopping malls, single-tenant residences, healthcare buildings, office buildings, and much more.

• Mortgage REITs (mREITs): These high-yield REITs are companies that buy the mortgage from the property’s original lender and collect its monthly payments. This variation has the potential for higher dividends than standard REITs due to its connection with mortgage-backed securities, but has an overall higher risk.

• Hybrid REITs: These are a combination of equity REITs and mREITs. Ask your financial advisor if this REIT works toward your goals.

What kind of REIT should I choose?

Since REITs own many types of real estate, investors have a lot of choices. While one may prefer to invest in offices and self-storage units, another may prefer to invest in apartment buildings, warehouses, hospitals, or hotels. Or, another may accept higher risks and shoot for higher dividends with mREITs.

Note: The typical monthly dividend from a REIT is taxed as ordinary income. A surtax on investment income can also apply.

Check with your financial advisor to determine how much to prepay on your taxable income so you can stay on top of your dividend stocks and income taxes. Also, you can explore some tax-free options like owing REITs in an IRA.

The Benefits of REITs

REITs can become an excellent supplement to any real estate investor’s portfolio. Here are some other benefits you can reap from holding this type of asset.

• REITs pay dividends to all shareholders. This means you don’t have to do anything to get returns. The more profitable REITs you invest in, the better your personal finances!

• By law, REITs must pay 90% of their annual income as shareholder dividends, which makes them among the highest dividends in the stock market. So, even if you don’t get the best high-dividend REITs, this type of stock can still do better than other investments on the open market.

• REITs are easy to acquire and sell through the stock exchange, which is excellent for investors who want to avoid being hands-on or going through lengthy purchase and selling contracts.  

How to Find the Highest Yielding REITs

Every real estate asset comes with a degree of risk. However, some REITs come with less risk than other types. The trade-off is that lower-risk REITs typically come with lower returns. Ultimately, each investor must decide how much volatility (and potential rewards) they are willing to accept in their portfolio. Here are some general pointers to assist with your decisions.

• Equity REITs are less risky than mREITs. Though they pay lower dividend payments, they are more stable in cash flow than mREITs. This is an excellent option for a new investor or anyone looking to bolster their portfolio with some less volatile assets. If you want the best of both worlds, ask your financial advisor about hybrid REITs.

• Publicly-traded REITs are less risky than non-exchange-traded/private REITs. Publicly traded REITs may produce lower REIT dividends than private REITs, but they follow strict guidelines, are more transparent, and don’t have conflicts of interest with shareholders. 

• Look for REITs that have a history of dividend growth. It’s safer to hedge your bets on a REIT in which other investors have confidence. Beginners should look for stocks that consistently pay large dividends that grow over time. Properties that experience steady capital appreciation are more likely to be part of good REITs.

How to Invest in The Highest Yielding REITs?

REITs are some of the most accessible and simple investments, making them perfect for investors of all skill levels. Each REIT, under the right circumstances, offers a monthly dividend yield that becomes part of an investor’s cash flow.

Publicly traded REITs are the easiest to access. All you have to do is create a brokerage account on a website like Fidelity. Then, link your bank account information with your investment account and buy REIT stocks. 

To look for non-exchange traded REITs, you must find a broker specializing in them. No matter what path you choose, it’s best to work with a financial advisor to discuss your selections’ pros and cons.

The Choice is Yours

While one real estate investor may prefer collecting distributions from REIT shares, another may want to fix and flip homes to profit from the real estate market. Either method can build wealth when you gain investment experience. Remember, you can build a strong portfolio through diversification, and investing in REITs can be just part of your methodology.

Real Estate Investment Trusts

When you partner with a nationwide brokerage like Marketplace Homes, you can discuss ways to boost your real estate portfolio. We can help you minimize risk by diversifying your portfolio by asset type while professionally managing rentals. Whether you’re a novice or a seasoned investor, our estate agents are ready to help you with your next steps. Contact us to find out how we can help you meet your investment goals!