Looking to invest in real estate without the hassle of property management? Consider a real estate investment trust (REIT). REITs allow investors to enjoy the benefits of investing in various properties without the responsibilities of directly managing them. In this article, we'll explore the basics of REIT investing and provide some helpful tips for beginners.
A Background on REITs
What Is a REIT?
A REIT is a company that pools funds from investors to buy and operate income-generating real estate properties. Most REIT properties are rented out to generate rental income, which is distributed to investors as dividends. Whether it's office buildings, apartment complexes, or storage facilities, REITs offer a wide range of real estate assets for investors to diversify their portfolios.
Why Were REITs Created?
In 1960, Congress created REITs to allow individual investors to enter the income-producing real estate market on a larger scale. By investing in REITs, individuals can earn a share of the income generated by commercial real estate without the need to purchase properties individually. REITs provide access to different types of real estate that might otherwise be inaccessible for individual investors.
How to Invest in a REIT
There are three types of REITs that investors can choose from:
- Publicly traded REITs
- Public non-listed REITs (PNLR)
- Private REITs
Public REITs can be accessed through broker services, similar to trading stocks. PNLRs can be accessed through online real estate investment platforms like 1031 Crowdfunding. Private REITs, on the other hand, require investors to be accredited.
Required Qualifications for REITs
To qualify as a REIT, companies and entities must meet specific criteria outlined in the Internal Revenue Code (IRC). These criteria include having transferable shares, being managed by a board of directors or trustees, and distributing at least 90% of taxable income as dividends to investors annually.
Key Tips for Investing in REITs
What to Look for in a REIT
When choosing a REIT, it's important to consider factors such as asset type, location, acquisition strategy, and the reputation and experience of the management team. Look for REITs that demonstrate earnings growth, increasing rents, and high occupancy rates. These indicators suggest a well-managed REIT with the potential for reliable passive income.
REIT Caveats and Considerations
Like any investment, REITs come with their own benefits and drawbacks. Here are some important considerations:
- Varying liquidity: Some REITs, especially PNLRs, may have limited liquidity, meaning it can be challenging to sell shares quickly.
- Income suitability: Certain REITs may have income or net worth thresholds that need to be met for investment eligibility.
- Potential poor management: Investors have limited control over the management processes of REITs and rely on the expertise of the management team.
- Tax implications: Dividends from REITs are often taxed as regular income.
- Potential dividend suspension: Underperforming REITs may suspend dividends and redemptions.
- Limited transparency: The transparency of asset value can vary depending on the classification of the REIT.
- Volatility: Publicly traded REITs can be subject to market fluctuations and higher volatility.
REIT Future Trends
To ensure success, REIT managers need to stay agile in an ever-changing industry. They should identify and adapt to new trends in the rental market. For example, the preference for urban living among young people has impacted the demand for suburban malls and boosted urban shopping strips. REITs that recognize and adapt to these trends can position themselves for success.
Learn More About REITs With 1031 Crowdfunding
Whether you're a brand-new or seasoned real estate investor, REITs offer a hassle-free way to generate passive income. At 1031 Crowdfunding, we provide a platform that showcases various REIT investment options tailored to your financial and personal goals. Our experienced team is here to support you throughout your REIT and alternative investment journey. Register for an investor account today to learn more about our offerings and make informed investment decisions.
This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees, and other expenses. Investing in private placements is speculative in nature and involves a degree of risk. Past performance is not indicative of future results. Securities offered through Capulent, LLC Member FINRA, SIPC.