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Home»Property Investment»10 Things You Should Know About REITS
Property Investment

10 Things You Should Know About REITS

March 24, 20248 Mins Read


Real estate can create a more balanced investment portfolio. A portfolio with between 5% and 20% of real estate has better returns and less risk than a portfolio only of stocks and bonds, according to a meta-analysis of academic articles by Morningstar. But for most investors, that might not justify the headaches of managing tenants and repairs for a rental property. A real estate investment trust, a.k.a. a REIT, could be a more convenient solution.

“A REIT is a fund that buys real estate for investors,” says Lee Harbaugh, a real estate agent in Mansfield, Texas. “It’s a passive way to get real estate exposure where you don’t have to worry about buying or selling properties yourself.”

REITs first emerged in the 1960s and now have more than $4 trillion in assets. That’s still a fraction of the money in stocks and mutual funds. “Asset managers like REITs for portfolio reasons, but I don’t typically have clients asking about them. They’re underutilized,” says Justin Stivers, a financial adviser and estate planning attorney in Coral Gables, Fla.

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Here’s what to know about REITs:

1. REITs operate like mutual funds for real estate 

REITs raise a pool of money from many investors and then buy and run income-generating real estate properties. Some possibilities include apartment buildings, shopping malls, hospitals, office parks, warehouses and storage units. “There’s no way you could buy a mall on your own, but through a REIT, you can invest in one,” says Harbaugh.

As an investor, you purchase shares of a REIT. You then receive a portion of the profits from rental income and property sales as dividends. For example, Digital Realty Trust (stock symbol DLR) invests in data centers. It pays a quarterly dividend with a quarterly yield of 3.6% that has gone up every year since 2005 while shares are up more than 20% over the past year. CubeSmart (CUBE) runs self-storage facilities. It has a 4.67% dividend yield and an 11.03% three-year return.

Professionals working for the REIT research, manage, buy and sell properties on behalf of the investors. In exchange, the REIT could charge fees when you buy shares, ongoing annual management fees and fees for buying and selling properties. The fee structure depends on the REIT.