REITs: A Property Investment Option If You Have Limited Funds

When it comes to investing, putting funds into real estate has long been a popular way for people across the country to generate substantial profits.

However, while you might be keen to join their ranks and invest your money into housing or another type of property if you’re like many Americans, you might be putting this off because you don’t have enough funds available to buy something, even if you did get a hefty mortgage.

Furthermore, you may be concerned about your lifestyle being compromised if you have to allocate a significant portion of your income towards repaying a loan.

You may also find yourself self-employed, with a poor credit rating, or having a short tenure in a job, making it challenging to get a loan approved at a bank or other lending institution.

If so, perhaps it’s time to consider another option. Investing in real estate without tying up all your money in a property is possible –  real estate investment trusts (REITs) can make this a simple and straightforward prospect. To decide if this investing option is right for you, read on for the lowdown on REITs.

An Explanation of Real Estate Investment Trusts

A REIT is a type of investment structure in which money is invested in buying and/or managing income-producing real estate.

These trusts are similar to ETFs and mutual funds. Still, rather than investing in stocks, money is put into buying a portfolio of properties and/or mortgages designed to produce income.

The properties themselves, or the mortgages on them, can be the assets managed by the trust. Trust members then earn a share of the income produced each year.

Real estate investment trusts can invest their money in any property, but they often purchase commercial real estate, such as malls, hotels, office buildings, and apartments.

One of the benefits of this is that investors can have their money invested in large-scale, income-producing real estate without the hassle or cost of maintenance, repairs, and rentals to manage themselves.

REITs typically don’t develop and resell properties, as the assets are purchased and held as part of an investment portfolio.

Note, too, that real estate investment trusts must have at least 100 shareholders, with no single owner possessing more than 50 percent of the shares among them. At least three-quarters of the trust’s assets must be invested in property to qualify as a REIT.

The History of Real Estate Investment Trusts

Real estate investment trusts (REITs) have existed for a long time. In 1960, Congress granted legal authority to form REITs as an amendment to the Cigar Excise Tax Extension.

The title of the then-leader, President Eisenhower, signed the REIT Act title into law. This development gave all investors, large and small, the chance to invest in expensive, diversified portfolios of income-producing real estate.

The first REITs were launched between 1960 and 1961. They were Bradley Real Estate Investors, First Mortgage Investors, Continental Mortgage Investors, Washington REIT, First Union Real Estate (now Winthrop Realty Trust), and Pennsylvania REIT. Some companies are still listed on the New York Stock Exchange (NYSE).

The first to be listed was Continental Mortgage Investors in June 1965, and as of 2017, close to 200 real estate investment trusts have been listed on the NYSE. Over the years, REITs have consistently been one of the top-performing asset classes, averaging returns of nearly ten percent.

Types of Real Estate Investment Trusts

Regarding REIT investment options, there are numerous types to consider for your investment. For example, you can opt for a publicly traded real estate investment trust or a non-traded real estate investment trust, such as those listed above.

REITs also come in two types: Mortgage or Equity. Mortgage REITs specialize in borrowing money at low, short-term interest rates to buy mortgages on properties that pay higher rates over the long term.

Trust members then profit from the difference between the two rates. Alternatively, Equity REITs own and operate income-producing real estate.

When comparing real estate investment trusts, also be aware that some choose to have a diversified portfolio that includes properties in various asset classes (e.g., retail investments, residential buildings, healthcare properties, and others). In contrast, others specialize in one particular niche.

If you are interested in REITs in a particular jurisdiction, for example, Singapore, you may find more details in this article on REITs and ETFs in Singapore.