Welcome to Herconomist, where we empower women like you to step into the world of finance with confidence. Our aim is to break down the complexities of investing and present them in a language that is more relatable, approachable, and empowering. Today, we’re shining a spotlight on one of the most accessible and lucrative investment avenues: Real Estate Investment Trusts (REITs).
What are REITs?
A REIT, or Real Estate Investment Trust, is a company that owns, operates, or finances income-generating real estate. Modelled after mutual funds, REITs pool the capital of numerous investors, enabling you to earn dividends from real estate investments without having to buy, manage, or finance any properties yourself.
Why Invest in REITs?
Investing in REITs offers several benefits. They generate a steady income stream, provide potential for long-term capital appreciation, and offer excellent portfolio diversification. The comparatively low correlation with other assets makes them an excellent portfolio diversifier, helping to reduce overall portfolio risk and increase returns.
Real Estate Investment Trusts (REITs) offer an average annual return of around 10-12%, depending on the specific REIT and market conditions. This return comes from a combination of rental income (usually distributed as dividends) and appreciation in the value of the properties owned by the REIT. While the returns on REITs may be comparatively lower than traditional real estate investments, they offer a unique opportunity for investors, especially those looking to dip their toes into the real estate market. This article will delve into the reasons behind the lower returns and the potential benefits of investing in REITs.
Types of REITs
REITs are classified into three broad categories, depending on their investment holdings. These include:
- Equity REITs: These REITs own and operate income-producing real estate. The revenues are primarily generated through rents.
- Mortgage REITs (mREITs): These REITs provide financing for income-producing real estate. They earn income from the interest on the mortgages and mortgage-backed securities they hold.
- Hybrid REITs: These REITs combine the investment strategies of both equity and mortgage REITs, owning and operating real estate properties, and holding commercial property mortgages in their portfolio.
Each REIT type comes with different characteristics and risks, so it’s crucial to understand what’s under the hood before you invest.
How to Invest in REITs
Here are a few methods to begin your investment journey in REITs today:
- Online Investment Platforms: Websites like Fundrise, RealtyMogul, and DiversyFund allow you to invest directly in a portfolio of REITs.
- Stock Brokers: Traditional brokerages like Charles Schwab, Fidelity, E*TRADE, and TD Ameritrade allow you to buy individual REIT stocks, REIT mutual funds, and REIT ETFs.
- Robo-Advisors: Automated investment services like Betterment, Wealthfront, and SoFi Invest include REITs in their diversified portfolios.
- Direct Investment: Some REITs allow you to buy shares directly from them, bypassing brokerage firms. For instance, Realty Income has a direct stock purchase plan.
- REIT ETFs and Mutual Funds: Fund providers like Vanguard, iShares, and Schwab offer REIT ETFs and mutual funds.
- Crowdfunding Platforms: For accredited investors, platforms like CrowdStreet, ArborCrowd, and RealCrowd offer high-value commercial real estate investments.
Remember to do thorough research and consider consulting with a financial advisor before making any investment decisions. REITs, like all investments, come with their own set of risks.
Benefits of Investing in REITs
REITs offer several benefits for investors. They typically provide a steady, regular income stream in the form of dividends, and potential for long-term capital appreciation. They offer excellent liquidity as most REITs are publicly traded on major stock exchanges, making buying and selling shares as easy as trading any other stock. Furthermore, REITs offer portfolio diversification benefits, helping to mitigate risk.
Risks of Investing in REITs
Like any investment, there are risks associated with investing in REITs. These include market volatility, interest rate risk, and property-specific risks such as tenant turnover and industry headwinds. It’s important to conduct thorough research and understand the potential risks before investing in REITs.
How Do REITs Work?
The primary way that REITs generate income is through the rents and leases of the properties they own. To qualify as a REIT, a company must adhere to specific IRS provisions, including investing at least 75% of total assets in real estate, deriving at least 75% of gross income from real estate, and returning a minimum of 90% of taxable income in the form of shareholder dividends each year.
Conclusion
Investing in REITs is an excellent way for women to build wealth and achieve financial stability. With the right knowledge and strategies, any woman can become a successful real estate investor. Remember, the key to successful investing is diversification, patience, and a clear understanding of your financial goals and risk tolerance. So, Join us at Herconomist and empower yourself to take control of your financial future!
