Real estate investment trusts were first created by federal legislation in 1960 to allow individual investors the opportunity to invest in real estate by the purchase and sale of securities. Investing in REITs can be equated to acquiring an interest in a company through purchase of its stock in the stock market, yet there are marked differences between the two. In the 60 years since their inception, REITs have become a very popular investment vehicle for many reasons, six of which are discussed here.
The law that established REITs also mandated that they must pass along a minimum of 90% of their taxable income to shareholders as dividends.
Low-cost entry point
For many, the barrier to direct real estate investing is the tens of thousands of dollars or more that is required to get started. While any amount of money can be placed in a REIT, a publicly traded REIT is available for the current share price, which is affordable for almost any investor.
A REIT investor provides the capital to be invested and then steps aside and allows the professional to take over the management duties.
Portfolio diversification and reduction of volatility
Real estate provides an important element of asset allocation for any portfolio. Additionally, REITs do not typically follow the pattern of the larger economy, particularly the stock market. When stocks begin heading south, REITs may hold their value or even increase.
Although REITs are required to pay taxes at the trust level and the beneficiaries are taxed on their dividends, other tax rules, for all practical purposes, permit most REITs to pay no taxes if they distribute 90% of their income to unit holders. REITs, therefore, may offer a relatively higher yield than stocks where the company must pay a corporate tax before distribution of dividends.
As opposed to an illiquid rental property, for instance, which must be held for a significant period of time to show a profit when sold, REITs can be traded freely.
Primior provides a highly skilled team of real estate professionals dedicated to providing opportunities for high return and low risk within an atmosphere of complete transparency. Contact us today for information regarding REITs and other real estate investing.