Stableford Capital Insights

How Does REIT Investing Work?

If you’ve been thinking about investing in the real estate market but don’t see building ownership in your future, REIT investing offers you the best of both worlds: invest in real estate without the risks or hassles of owning the property yourself.REITs, or real estate investment trusts, are corporations that make it possible for an investor to benefit from the steady income generated by both real estate equity and real estate debt. By offering greater portfolio diversity and positive return rates, REITs have positioned themselves as a staple in many investment portfolios.

The Popularity of REIT Investing

REIT Investing book on desk for Stabeford Capital-web

REITs are extremely popular funds to include in retirement portfolios, with 145 million Americans already invested in REITs. From their inception in 1960, they have been an investment vehicle for average investors to get their piece of the real estate pie.They are designed to be similar to mutual funds, with many investors grouping money to own property. Many modern REITs offer investment options starting with low minimums, making them ideal for beginner or middle-class investors.Some investors also turn to REITs to offset stock investments. Not only do REITs offer diversity in a portfolio, but they also provide equal or greater returns when compared with traditional indexes such as the S&P 500. Annual returns over the decade between 2010 and 2020 averaged around 9.5%, as measured by the FTSE NAREIT Equity REIT Index. In the last three years of that period, it climbed to 11.25%.Furthermore, some investors choose to take dividends from their REITs as a form of passive income. Depending on the initial and ongoing investment, these dividends can be an attractive prospect to REIT investors.

The Different Types of REITs You Should Know

To be considered a REIT, these trusts must invest 75% of their assets in real estate and make 75% of their income from real estate in some capacity (mortgage interest, charged rent, etc.). The vast majority—at least 90%—of their earned income goes back to their investors.

Stock Market Industry Sector for REIS - Stableford-web

In an equity REIT, you’ll find a variety of building types. These may include hotels, office buildings, apartment complexes, and others. Specialization in one particular type of commercial property is typical among REITs. Some may concentrate on healthcare facilities while others take advantage of retail opportunities. Returns come from property use, such as rent.Mortgage or debt REITs collect on the interest earned on mortgages in the residential and commercial real estate they invest in. Though earnings are determined by interest rates, the low-risk nature of these REITs makes them attractive.Some REITs offer a hybridization of equity and mortgage styles. REITs can be also both private or public companies, and if public, may or may not have their shares traded.

Why REIT Investing Should Be Part of Your Portfolio

Why did you choose to invest in a home when you could have simply put that money into stocks? It’s most likely because you knew investing in real estate is one of the best long-term uses of your funds. It is a tangible good that retains value with maintenance and typically grows in value over time.

Real Estate Investing in Shopping Mall Development - Stableford-web

The equity in your home is likely one of the safest places you’ve ever invested your money. REITs operate under similar assumptions. They offer balance when compared to simply putting all of your money in the stock market. You can give yourself the benefits of diversity and consistent performance by expanding your portfolio to include REITs.If you choose to invest in REITs that specialize in one type of real estate, it is important to do so with the market in mind. Investing in apartment buildings in areas that young people are steadily moving out of would be a poor choice. Conversely, investing in retail REITs that include mainstays like supermarkets can be an excellent choice.

How a Professional Can Choose the Best REITs for You

Though REITs are viewed as generally positive investments that net satisfying returns, it is important to go into REIT investing with eyes wide open. A professional can help you choose which REIT is best to invest in based on the economic climate, alternating between equity and mortgage/debt, as well as steering toward specialized REIT industries that are successful at that time, such as healthcare.

REIT with tax advantages on note with graphs - Stableford-web

An investment advisor can also help you maximize the tax advantages associated with REITs. As the trust is not taxed, investors get larger payouts that only they are taxed on. Additionally, REIT investments are considered qualified business income, which entitles investors to deductions of up to 20%. Take advantage of these tax rules to make the most of REIT investing.Adding REITs to your investments can give you greater security and more positive returns. At Stableford, we’ve been investing in REITs for some time. A Stableford Capital investment professional can advise you on the best-performing REITs to invest in during this current market. Reach out to a Stableford advisor today at 480.493.2300 or set up a complimentary 15-minute consultation online.

Andrew Brinkman
Andrew J. Brinkman is the Founder of Stableford Capital. Over the course of his 45+ year career, he built A.J. Brinkman & Co., a leading foreign exchange arbitrageur and institutional floor broker, was a managing partner of Petros Capital, a long/ short institutional hedge fund and, for the past ten years, he has been a discretionary asset manager for high net-worth families. Andrew Brinkman has been a member of the Chicago Mercantile Exchange, the New York Futures Exchange, and the Chicago Board of Trade. A 1978 graduate of Cornell College with degrees in Economics and Political Science, he was a board member for ChildHelp USA, a board member of the Berry Center for Economics, and former trustee of Cornell College.