Real Estate Investment Trusts are an investment tool that allows an interested party the ability to invest in commercial real estate by buying a specific portion or interest of property. A Real Estate Investment Trust, or REIT, is a company that owns and also finances income-producing commercial real estate, generally for the purpose of investment and resale.
Many people who seek to invest their income and build a diverse portfolio look to add real estate due to its income producing potential. This investment tool allows an investor to own a share in several properties without having to front the major costs of purchasing an office building, apartment complex, industrial warehouse, or shopping plaza.
Why Add a REIT to your Portfolio?
As interest rates increase, the value of REITs tend to increase as well due to the positive nature of the economy pushing rent growth and occupancy of real estate. Right now, the real estate market is doing particularly well, with demand being high and supply lower than past years, which is further encouraging new development as well as sales. In order to maintain a successful portfolio, any professional investor or broker will suggest having a variety of investment tools in order to generate income from multiple areas.
If a potential investor has an interest in learning more about the real estate market but does not know how to break into it or does not have the accessibility, REITs give that real estate exposure without the major risks. Starting out by investing up to 15% of your portfolio in a REIT if it is currently underweighted will in most cases provide for a conservative but sustainable long term investment return. Lastly, adding a different industry or market to your portfolio ensures that when the stock market ebbs and flows, there will be additional tools available to continue generating income for the portfolio without relying on one particular area.
How to Get Involved
To begin the process of adding a REIT to your portfolio, an investor can research publicly traded REITs listed on any major stock exchange, talk to a broker to determine if there is a non-publicly traded REIT that they would suggest investment in. For those looking to invest but are apprehensive about the process, choosing a REIT mutual fund or REIT exchange traded fund may be a more suitable way to further diversify your portfolio.