Listed REITs offer investors a way to add real estate to an investment portfolio and earn an attractive dividend. Listed REITs are safer than their unlisted counterparts, but risks remain. It is important to remember that retail REITs make money from the rents they charge tenants. If retailers have liquidity problems due to low sales, they may delay or even default on those monthly payments, eventually being forced into bankruptcy.
At that point, a new tenant has to be found, which is never easy. Therefore, it is crucial that you invest in REITs with the strongest possible anchor tenants. These include grocery shops and home improvement shops. Once you have made your sector assessment, your focus should turn to the REITs themselves.
Like any investment, it is important that they have good earnings, strong balance sheets and as little debt as possible, especially short-term debt. In a poor economy, retail REITs with large cash positions will have the opportunity to buy good real estate at depressed prices. The best managed companies will take advantage of this. These are REITs that own and operate multi-family rental apartment buildings as well as manufactured housing.
When it comes to investing in this type of REIT, there are several factors to consider before jumping in. For example, the best flat markets tend to be those where housing affordability is low relative to the rest of the country. In places like New York and Los Angeles, the high cost of single-family homes forces more people to rent, which drives up the price that landlords can charge each month. As a result, the largest residential REITs tend to focus on large urban centres.
Generally, when there is a net influx of people into a city, it is because jobs are available and the economy is growing. A declining vacancy rate coupled with rising rents is a sign that demand is improving. As long as the supply of flats in a particular market remains low and demand continues to increase, residential REITs should do well. As with all companies, those with the strongest balance sheets and the most available capital are typically the best performers.
Healthcare REITs will be an interesting sub-sector to watch as Americans age and healthcare costs continue to rise. Healthcare REITs invest in the real estate of hospitals, medical centres, nursing homes and retirement homes. The success of these properties is directly linked to the healthcare system. Most operators of these facilities rely on occupancy rates, Medicare and Medicaid reimbursements, as well as private payments.
As long as healthcare financing is a question mark, so are healthcare REITs. But the fact that this type of REIT invests in mortgages rather than equities does not mean that it is risk-free. An increase in interest rates would result in a decrease in the book value of mortgage REITs, which would depress the share price. In addition, mortgage REITs raise a considerable amount of their capital through secured and unsecured debt offerings.
If interest rates rise, future financing will be more expensive, reducing the value of the loan portfolio. In a low interest rate environment with the prospect of rising interest rates, most mortgage REITs trade at a discount to net asset value per share. The trick is to find the right one. Most investors consider real estate investment tr usts, or REITs, to be a safe investment.
These companies typically generate stable rental income, allowing them to pay attractive dividends. All REITs invest in real estate assets, but not all invest in buildings. Timber REITs own land that produces timber and are interesting long-term investments. As with any type of investment, REITs carry some risk.
Publicly traded REITs, for example, can experience downturns, as their share price fluctuates with the stock market. Investors who are easily deterred by volatility may not feel comfortable investing in a publicly traded REIT that experiences ups and downs along with the stock market. To invest in them, you would need to work with a financial advisor or broker to arrange your investment. Real estate investment tr usts (REITs) are popular investment vehicles that generate income for their investors.
If you don't want to trade individual REIT stocks, it may make a lot of sense to simply buy an ETF or mutual fund that researches and invests in a number of REITs for you. Approximately 145 million Americans live in households that invest in REITs through their 401(k)s, IRAs, pension plans and other mutual funds. At the same time, an investor who wants easy access to his money at any time may want to avoid investing in something that locks up his money for long periods of time. You can invest in publicly traded REITs through retirement accounts, including traditional and Roth IRAs.
If you want to invest in publicly traded REITs, you can do so through any brokerage account, such as Fidelity or TD Ameritrade. Sales commissions and upfront offering fees typically add up to about 9 to 10 percent of the investment. Unlisted REITs are also illiquid, which means that there may not be buyers or sellers in the market available when an investor wants to transact. Instead, it is important for investors to choose REITs that have strong management teams, quality properties based on current trends and are publicly traded.
Publicly traded REITs have a particular risk of losing value when interest rates rise, often sending investment capital into bonds. These companies own and operate real estate, as well as hold commercial real estate mortgages in their portfolio. A real estate investment trust ("REIT") is a company that owns, operates or finances income-producing real estate. Real estate prices rise and fall in response to external stimuli, underlying fundamentals and a variety of other market forces.