7 MUST knows about REITS: An Hybrid Real Estate Investment

Having discussed REITs here and extensively classified them here, seven must know properties of REITs will be discussed to ensure you are equipped with every information needed to trade them successfully.

The following are the seven must know properties of REIT

They contain only real estate assets
REITs are great investments for real estate enthusiasts as they only contain real estate investments.

They are dividend producing investments
REITs produce incomes from the income generated from rents for equity REITs, principal and interest payments from Mortgage REITs. This income can be paid monthly, semi annually or at any specified period stated by the REIT company.

They are listed on stock exchange
Unlike traditional real estate REITs can be traded on the stock exchange. There are many Equity REITs listed on the Nasdaq that you can take a look at. The listing of these provides investors the opportunity to benefit from the capital appreciation for an on demand REIT.

Their average yearly returns
Most REITs yields high as 9% annually. They are also one of the highest yielding fixed investment incomes.They are also one of the highest yielding fixed investment incomes.

They are affected by interest rates
It has been established that interest rates are inversely correlated to REITs returns. As interest rate rises the future cash flows stifles dividend payments as a larger chunk of generated revenue is used to pay back loans.

Fig 1: Correlation between REIT and Interest Rates

Acquisition of new properties also becomes more expensive while rents remain fairly the same. For an investor looking to make low risk fixed income investments, adding more REITs to your portfolio in times of low interest can be a very good investment decision.

They are low risks
REITs are generally classified as low risks investments. Mortgage REITs carries a slightly higher risk because of the direct impact from rising interest rates. Many public and private pension plans account for 29.1% percent of its total market capitalization in shares.

They can be Traded as an index
 An investor looking for a more diversified investment in real estate can purchase Exchange Traded Fund REITs as they track investments from different sectors of the Real estate world. In times of real estate boom holding REITs ETFs can be very rewarding.


In Conclusion,
Are you looking to invest in Real Estate but cannot handle the hassles of maintenance, defaulting tenants, accounting etc. If yes, Invest in REITS