By Catherine Burke
7 Reasons REITs are Effective Passive-Investments
Prologis, Healthpeak Properties, and Liberty Property Trust.
Have you heard these names before? If your answer is yes, you have an interest in REITs or Real Estate Investment Trusts. You’re the right person who would consider investing in REITs as a passive income way.
What are these names?
Prologis, Healthpeak Properties, and Liberty Property Trust; are the names of REIT stocks that have performed well in the US REIT market in 2020. These companies have $2 billion to $60 billion as market capitalization. These companies are considered mid-cap to large-cap in the US REIT market.
“ Real Estate provides the highest returns, the greatest values, and the least risk.”
- Armstrong Williams, Entrepreneur
Real estate offers three ways of investing, and from those investments, you can earn passive income.
1. Dividends from REITs
The REIT companies pay a minimum of 90% of their taxable income to shareholders. You can easily assume from the return rate that no other investment can give you such a high return.
There are three reasons REITs can be your ideal way to earn passive income.
A. The upfront cost is relatively lower than other investments.
B. REITs can be easily purchased by opening a brokerage account.
C. REITs provide high dividend returns.
One important point must be noted that dividends earned from REITs are considered portfolio income. REITs are not taxed by the IRS.
2. ETF dividends that are earned from REITs
When you invest in a REIT ETF or Exchange-Traded-Fund, the professional fund manager decides which REIT fund, the fund manager must invest the money. Then as per the decision, the money is invested in a group of REITs.
It is better to invest in a REIT ETF; it will increase your chances of earning higher dividends than investing in the individual REIT.
3. Invest in Rental properties
There are several ways to invest in rental properties. The REIT investment in rental properties generally has two methods.
· Residential rental property.
· Commercial rental property.
Under these two categories, you will get different REIT investment opportunities such as single-family rental, apartment-complex rental, industrial building rental, office space rental, etc.
The REIT investment in rental properties usually has short-term rentals and long-term rentals. In short-term rentals, you can lease the property monthly for two-weeks or weekly.
What the statistics show us about investment in REITs
The latest REIT statistics say that nearly 87 million Americans have invested in REITs directly, or through REIT ETF, or REIT mutual funds.
Even institutional investors like pension funds, insurance companies, and bank trust departments have invested in REITs.
You can easily assume REITs have become a safe way to invest our money and earn passive income.
“ Buying Real Estate is not only the best way,... but the only way to become wealthy.”
- Marshall Field
The REIT experts will tell you about seven advantages that the REIT market will provide after your investment.
1. The healthy dividends
REITs will provide you the highest dividend yields in the investment market. They are obliged to pay 90% of their annual income as dividends to the shareholders.
This is why REITs are a favorite among investors as a way of earning healthy dividends. The high-ranked REITs are famed for providing high dividends regularly for decades.
2. The scope of earning high returns
Any REIT market veteran will tell you that earning higher returns is far greater if you compare it with the stock market. REITs seem to be an attractive option for you if you want portfolio diversification.
3. REITs are less volatile than traditional stocks
REITs can protect your regular passive earning as it is less volatile than the traditional stocks. You may have witnessed the ups and downs in the stock market, but you may rarely see it in a REIT. A REIT is not affected by a volatile market and doesn’t swing up and down like other stocks.
4. REITs will give you the liquidity advantage
The public-traded REITs are far easier to buy and sell. It is an easier way of earning a passive income than if you intended to buy, sell, and manage actual commercial properties.
5. REITs have a praisable long-term performance
In the long-term, REIT is praised everywhere for the higher returns with comparison to other stocks.
6. The protection measure is high with REITs
The auditors, independent directors, financial analysts, and business media; everyone makes thorough scrutiny of public listed REITs’ performance. The regular analysis gives the investors solid protection that there is a minimal chance of fraud in the REIT market, and they al-ways remain well aware of what’s going on in the REIT market.
7. A reliable investment for retirement savers and retirees
The strong dividend, high return, and protection have made REITs a trusted passive earning way for retirees and retirement savers. REITs can provide you a good income for your post-retirement life.
The 2019 average returns by sector-wise top 7 Equity REITs performance Curiosity may have evoked in your mind how well REITs can support you as a passive-income stream.
Take a look.
|
REIT Sector |
The Average return from 2019 |
|
Industrial Sector |
48.7% |
|
Data Center |
44.2% |
|
Infrastructure Sector |
42% |
|
Office |
31.4% |
|
Residential Plots |
30.9% |
|
Speciality Sector |
27.4% |
|
Diversified Sector |
24.1% |
These are the seven sectors that have given the best performance in the REIT market in 2019. You may have a clear idea in your mind now about REIT and its advantageous features. But do your due diligence.
Take a look at the two reasons where you may feel investing in REITs has negative aspects too.
· Low growth can be a factor
The huge payment of dividends by REITs has a negative side too. They have to issue new stock shares and bonds for raising cash. But investors are not always willing to buy stock shares and bonds, especially during a financial crisis. So, the growth of REITs is partially dependent on investors’ mood and willingness. This can be a reason for the low growth of REITs.
· Liquidity can create a problem for non-listed REITs and Private REITs
Liquidity has never been a problem for public-listed REITs. But non-traded REITs and private REITs may face issues with liquidity. You may have to wait with your non-listed REITs and private REITs before they reach their full potential.
Despite these two negative points, REITs are total return investments. They are a better option than taking urgent loans like a payday loan to solve your problem with payday loan settlement programs.
You can call REIT a low-risk venture. That is why financial veterans recommend if you need money go for a REIT investment. It will give you a good return.
“ The best investment on Earth is earth.”
- Louis Glickman, Real Estate Investor
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