Real Estate Investment Trusts are an emerging industry. If you work in finance, REITs may be familiar to you. It creates income-oriented real property and is a growing part of the American financial sector. Are real estate investment funds a viable career choice?
REITs have proven to be a good career choice because of their rapid expansion since 1960. It will improve your portfolio diversification, regardless of what you did in your previous career. There are many job opportunities in the real estate industry. The market capitalization for REITs in America was $1.25 Trillion, making this a viable career path.
Did you know that most REIT prospects will be in management positions? Your influence could eventually be significant in the commercial real estate industry.
If you are looking for more information about real estate investment trusts, please read this article.
Important Points
- 51% of buyers used the internet to search for their homes.
- Six million houses that were already in existence were sold by 2021.
- 37 percent of all house-buyers are millennials.
- The average home price in 2021 will rise by more than 5%
- The 2022 decline in house sales is 1.7%
- The average increase in rent prices has been 18%
What is a Real Estate Investment Trust (REIT)?
In the US, there are upwards of 225 REITs that have a market value greater than $1 trillion. A real estate investment Trust (REIT), is an public fund listed on a stock market. To diversify their holdings, investors may also buy REIT ETFs.
REITs manage income-producing assets and real estate. REITs can own offices, hotels, resorts and other buildings. The REIT doesn’t intend to resell property it buys. The REIT’s property is really for development. The property can then be used to generate revenue as part of an investment portfolio.
These assets are easy to buy and sell and relatively inexpensive. In addition, REITs are more liquid than traditional real property holdings. All three major stock exchanges, NASDAQ and American Stock Exchange, list REITs. Via Mutual fundsInvestors may have indirect access to REITs.
Advantages Advantages and Disadvantages REITs
Below is a table that highlights the benefits and drawbacks of REITs.
| Pros | Cons |
| Diversifying your investments is possible. | Sensitivity to interest rate |
| High Dividend Yields | Reward taxes |
| Potential High Return | REITs Fail to Keep Up with the Times |
| Continuity | Risks and fees that could be exorbitant |
| Easy access to commercial property | Long-term investments are the best way to make money. |
| REITs have been thoroughly screened. | It is possible that the value of real estate could change. |
| You are guaranteed greater security | |
| Greater adaptability |
Diverse Real Estate Investment Trusts
Real estate investment trusts (REITs) should be considered for any equities portfolio or fixed-income portfolio. They offer greater diversity, possibly better total returns and/or lower overall risk. Because they may also provide capital growth and dividend income, they are a great alternative to stocks, bonds, or cash.
Real estate investment trusts manage and/or hold commercial real property that generates revenue, regardless of the actual properties or the mortgages secured by them.
These firms may be purchased by mutual funds, exchange-traded funds or individuals. There are many kinds of REITs. Some of these are:
1. Retail REITs
REITs invest around 24 percent in malls and freestanding retail.
This is America’s single largest investment of its kind. A REIT is likely to own any retail establishment that you frequent. Before you consider investing in retail real property, it is important to first examine the retail business. What are the current financial conditions of the business? And what is the outlook for the future?
It’s critical to remember that retail REITs profit from the rent they collect from tenants. If retailers have cash flow problems or weak sales, they could postpone these payments or skip them. This could lead to them going bankrupt. Finding a new tenant is then a difficult task. This is why you should only invest in REITs which have strong anchor tenants. Examples of these anchor tenants are grocery stores and home-improvement shops.
After you have evaluated the industry, it is time to focus on the REITs. They should be profitable, have strong balance sheets and not take on any debt, just like any other investment.
2. REITs that are home-based
These REITs are responsible for managing multi-family rental homes and prefabricated houses. You should consider several factors before you decide to invest in this type of REIT. Apartment markets in areas that are less affordable than the rest of the country often have the highest prices.
Because of the high cost single-family houses, many people find themselves forced to rent in Los Angeles or New York. This causes landlords to charge more per month. Therefore, large residential REITs tend to concentrate in major cities.
3. REITs that are health-related
Healthcare REITs are a fascinating sector to follow as we age and spend more on healthcare. Healthcare REITs invest into the properties and facilities of hospitals, clinics or nursing homes. The healthcare system has a direct impact on this real estate’s performance.
Most of these institutions’ owners depend on occupancy fees, payments from Medicare and Medicaid, and private funding. As long as healthcare financing remains stable, healthcare REITs will be insecure.
A healthcare REIT should contain interests in multiple property types and a diverse client base.
4. Office REITs
Office REITs are office building investors. The long-term lease-bound tenants they have provide them with rental cash. There are four main concerns for anyone considering investing in a REIT office.
- What’s the economy doing right now and what is the unemployment rate?
- How high is the vacancy rate?
- What is the economic performance of the REIT’s investments in the region?
- What amount of revenue is it able to purchase?
You should look for REITs that invest in economic powerhouses. Owning many small buildings in Washington, D.C., is more expensive than owning great office space in Detroit.
5. Mortgage REITs
Real estate is not represented by mortgages, which make up about 10% of the REIT assets.
Fannie Mae and Freddie Mac are the two most well-known investments; however, they aren’t always the best; these companies, supported by the government, purchase mortgages on the secondary market.
But, this type of REIT may not be considered risk-free simply because it invests in stocks and mortgages. An increase in interest rates could cause a decrease in the book value for mortgage REITs which would impact stock prices. A significant amount of mortgage REITs’ funding comes from secured and unsecured debt.
How to buy real estate investment trusts
The following are ways to buy Real Estate Investment Trusts
How can REITs make money
Renting, leasing, and selling REITs’ buildings generates income. A board of directors is elected by shareholders. This board selects investments and hires staff to manage them.
REIT returns amounts
When trying to create a diversified investment portfolio, investors often face the problem of having limited cash and an almost endless amount of investment options.
It is important to decide how much money you will allocate to each type of asset in your portfolio. These investing options include stocks and REITs.
It is best to compare the historical returns of REIT investments with those in equities by analyzing their past returns. This may prove difficult due to the number of REITs or businesses that may offer stock. It is therefore preferable to use broad indices for this comparison of stock performance and REIT performance.
The FTSE Nareit U.S. Real Estate Index is an effective alternative to a REIT. It monitors the performance US-based REITs. The S&P 500, a collection of the 500 biggest firms, is a reliable substitute for the stock market.
Historical statistics show that the FTSE Nareit index’s average annual return has been 11.42 percent every year since 1972. It was up 49% in the best year. It lost 42% its value in the worst years. Compare this performance to the S&P 500’s historical average annual return for the same time of 9.03 percent.
It experienced a 34% annual return in its best years and a 39% annual loss in its worst. Although the difference of REITs and stocks is not significant, it can add up over many years.
The table below also shows this.
| Period | S&P 500 (total annual return) | S&P 500 (total annual return) |
| 1972-2022 | 12.1% | 13.3% |
| The last 25 years | 11.9% | 12.6% |
| In the past 20 years | 7.7% | 13.3% |
| In the past 10 years | 14.2% | 13.2% |
| The last five years | 12.5% | 9% |
| The first quarter of 2022 | 14.2% | 13.2% |
The following graphic also shows the results for US stocks. Average returns
Opportunities for Employment in REITs
There are some job opportunities in REITs. Include:
1. Principal Director
The highest position in a REIT is that of chief executive officer. The CEO is responsible for all business operations, including strategy and capital markets.
Based on the extent of their wealth, CEOs could earn between $7 million to $25 million per year. According to statistics from the National Association of Real Estate Investment Trusts (NAREIT), there were 1,430 REIT CEOs by 2021. (NAREIT).
This was the average annual salary for specialists at $7 million.
Even executives with the highest salaries at large corporations made less than $3 million per annum, which is less than half of what CEOs make.
2. Chief Financial Officer
CFOs at REITs earn the most, $193,456 annually, and can potentially earn $500,000 more.
This includes managing investments, accounting tasks and raising funds.
Because there aren’t many well-paying jobs available, competition for them is fierce.
To acquire one of these jobs, you normally require a master’s degree in business and at least five years of expertise as an accountant or financial analyst.
3. Asset Manager
Asset managers are responsible for overseeing the portfolio of properties within real estate investment trusts. According to PayScale, asset managers are typically inexperienced and receive an average annual compensation of $139,000
Reit investments are relatively new and require little experience, particularly on Wall Street. Asset managers need to complete formal schooling.
4. Architects
If you are creative or interested in architecture, you could be a great match for an architect job.
Don’t be discouraged by the four years required to complete a bachelor’s degree in architecture from a recognized university.
Architecture is one the highest-paid professions available through real property investment trusts. This profession has an annual mean wage of close to $100,000 as of 2015.
5. Senior Analyst, Vice-President
The highest-paid positions in a REIT are Senior Analyst and Vice President.
According to Simply Hired, the average annual salary for a senior analyst and vice president was $84,510 in 2013.
Although VP and analyst positions won’t be available at every REIT, you may discover more about their usual duties there.
6. Officer in Charge of Compliance
Reits’ senior compliance officers are the most highly-paid.
Senior compliance officers are often paid $150,000 annually.
They also receive annual incentives pay and bonuses that make up a large portion of their salaries. They often receive bonuses at 100% of their target and incentives starting at 25%.
This remuneration structure makes senior compliance officers one of the most highly-paid positions in a REIT.
7. Project Manager, Development & Operations
Project Manager, Operations & Production, with an average annual compensation of $174,579, is among the best-paying positions in real estate investment trusts.
For this position, you will need a degree and at least three to five decades of experience. Legal and commercial real-estate knowledge are required for this job.
8. Accounting Supervisor
PayScale’s average annual salary for accountants and auditors is $81,480.
Accounting managers are more experienced than accountants, even though they may not be as senior as CFOs. Both professions require a four year degree to be eligible for entry.
According to the U.S. Bureau of Labor Statistics (USBol Statistics), the U.S. Bureau of Labor Statistics projects that the employment of auditors and accountants will grow by 6% between 2016-2026.
9. Executive; Leasing Agent
To help their customers get wealthier, investment firms are in charge of investing their client’s money in a variety of stocks, bonds, and other assets.
To attract new tenants to shops and offices in newly built buildings, they use leasing brokers.
Payscale estimates that an entry-level director at an investment firm will earn between $108,000 and $110,000 annually.
10. Computer specialists
Computer specialists enjoy the fastest pay increases, with their salaries increasing 6.9% in five years.
The median annual salary for these professionals in 2021 was $70.310. According to the BLS, their annual average income was less that $42,440 in 2020.
All things considered, REITS often come with a good payout. The graph below confirms this.
REITs vs. Real Realty Operating Companies vs. Real Realty Private Equity
You can see the distinctions in the table below.
| Mode for comparison | REITs | Real Realty Operating Companies | Real Realty Private Equity |
| Net Profit Distribution | While REITs can choose to distribute all of their earnings as dividends to some extent, the law obliges them to pay at minimum 90% of their net revenue. | REOCs can be managed by the administration. They decide whether the net revenue should be divided among shareholders or reinvested into new initiatives. | Real Realty Private Equity might decide to split fifty percent of the earnings. |
| Plan for Investment | Because REITs must distribute at least 90% of their net income in dividends, less than 10% of net profits can be reinvested by them. | REOCs can quickly fill their portfolios by using internal money to buy new properties and/or redevelop existing ones. | At least half of Real Realty Private Equity’s net profits must be paid out in dividends. |
| Main goal | A REIT (Real Estate Investment Trust) is a type of real estate company that oversees the ownership and management of real estate assets in one industry. | Real Realty Operating Companies manage real estate properties in many different industries. | Investment finance uses the phrase “Real Realty Private Equity” to describe a particular subgroup of the real estate investment asset class. |
| Possibility to enter | Entry barriers that are lower | Barriers to entry medium | Higher entry barriers |
Requirements to invest in REITs in the United States
According to the Securities and Exchange Commission (SEC), a company must meet many regulations in order to be classified as a REIT.
Most Commonly Asked Questions
Are real estate trusts good investments?
REITs are investments that give a total return. They often pay large dividends and offer the possibility of moderate long-term capital gains. Due to their low correlation with fixed-income assets and other equities, REITs make a great portfolio diversifier.
Are you a successful real estate investor?
Real estate investing is a great way to control your financial future. It is not without risks to buy, sell, and rehabbing property for a living. As you learn, it’s practically unavoidable that you’ll make some mistakes and report abuse sometimes. You can make a mistake by spending too much money on a home. This will reduce your profit margin.
To be a full-time real estate investor, you’ll need a lot of money or connections to money (private money, hard money, bank financing, self-directed IRA, etc.). To be able work 16 hour days and scale up, you will need the ability appraise a deal accurately. I’ve seen many beginner investors buy a house that had major issues or that they overpaid for. The house was either seized by the lender or lost the money.
Are REITs a bad investment idea?
In 2021, REITs will be especially vulnerable to changes in interest rates. Rising interest rates can have a negative impact on REIT stock prices. The yields of income-based investments such as Treasury securities, which are risk-free assets, tend to grow when they increase.
Can you get rich investing in REITs?
It is possible to become rich slowly by investing in REITs. Realty Income (NYSE: O), Digital Realty Trust (NYSE: DLR), and Vanguard Real Estate ETF (NYSEMKT: VNQ) are three REIT stocks in particular that are about the closest things you’ll find to guaranteed methods to grow wealthy over time.
The amount you receive is determined by the REIT’s management and market circumstances. A REIT may generally generate a 5–10% or higher return on investment. Your return on investment is proportional to the risk. You receive dividends and share price movements just like any other stock.
What is the average return for a REIT?
The average return for residential and diversified real property investments is 10.5 percent. However, REITs had an average 10.5 percent annual return.
So it’s not the answer you were searching for because even with those high-yield investments, you’ll need at least $100,000 to earn $1,000 a month. Most solid equities will not provide you with a monthly income of $1,000. It will take more than twice that.
Real estate is a better investment option than stocks.
Stocks are a popular investment option, but many people don’t realize that real estate can also be purchased. Real estate can be an alternative to stocks if you have the right conditions. It offers lower risk, higher returns and greater variety.
Real estate investments may take longer than stock investments. It takes more effort to own property than investing in stock or other assets, such as mutual funds. Real estate can be both expensive and inliquid. Even if you borrow funds, real estate investing requires a substantial initial investment.
Which REITs are most profitable?
Rank Company Market Cap Forward Dividend Yield Projected 5-Year Annualized EPS Growth** 2020 Return (as of 12/17) 3-Year Return
- Innovative Industrial Properties (NYSE: IIPR) $4.2 billion 2.6% N/A (Current year: 72%; next year: 67%) 157% 746%
- Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI) $4.5 billion 2.3% 5.4% 91.6% 192%
- Safehold (NYSE: SAFE) $3.9 billion 0.9% 37% 89% 341%
- Uniti Group (NASDAQ: UNIT) $2.7 Billion 5.1% 8.6% 53.3% (11.3%)
- Taubman Centers (NYSE:TCO) $2.7 billion 0%* 5.8% 40.1% (23.1%)
Does Warren Buffett invest in REITs?
Warren Buffett is a billionaire investor who does not own REITs or real property investment trusts. His preferred businesses include banking, commodities, and wealth management, all of which are ok in Berkshire Hathaway’s massive stock holdings.
Buffett loves REITs. They have recurring income, large tangible assets and the ability to grow without experiencing volatility. Buffett does not have a great deal of knowledge about REITs. However, he does own two REITs: one by Berkshire, the other by his holdings.
What is the best REIT for investing?
Retail and office REITs were particularly hit by shutdowns and work-from home regulations. This left properties vacant and rents uncollected. Even the year’s top REITs — those in the industrial and self-storage industries – were hit hard, with total returns of 9% and 10% in 2020, respectively, still behind the S&P 500. So, let’s talk about some REIT investments you can make:
American Tower
American Tower could increase its earnings by increasing their number of tenants per building. The annual mobile device penetration rate has increased by 8 percent and data usage has grown 28 percent each year. 5G technology rollouts have also seen an increase of 8 percent. The REIT is in a strong position to both exploit its tower contracts and attract new tenants.
Equity LifeStyle Properties
Equity LifeStyle Properties, $59.62, is a real-estate company that owns land on which renters can build prefabricated homes, vacation houses, or recreational vehicles (RVs). The company’s 415 assets span 33 states and include approximately 158.000 houses sites in prominent resort and holiday areas. Many of the villages are near beaches, rivers, or lakes.
Digital Realty
Digital Realty (DLR), $133.45, is a global data center REIT that provides services to clients in the information technology and communications, financial, healthcare, and consumer product industries.
It is one of the significant REITs in the United States because of its 15-year dividend increase run, it’s well on its way to becoming a Dividend Aristocrat. Given its industry, it could be one the best REITs of 2021 and beyond.
Which are the 10 best REITs?
Innovative Industrial Properties (or IIP) is the highest performing public cannabis-focused REIT. It purchases properties in areas where medicinal cannabis is legal and leases them to cannabis growers or processors. It is expanding rapidly with nearly doubled sales in the third trimester.
No. 2 Hannon Armstrong invests in climate solutions, such renewable energy. It was established in 1981, and it became public traded in 2013.
Safehold, the public-listed business that acquired, owned, and capitalized ground net leases, comes in third (GNLs). The property is owned by Safehold, which is commercial real-estate development. It was created in 2016 and became public in the year following.
According to the company’s website, Unit (No. 4) “focuses on the acquisition and building of mission-critical communications infrastructures such as fiber, wireless towers, and ground leases.”
Equinix (No. The next company on this list is Equinix (No. The firm was established in 1998. In 2000, it went public. At the beginning of 2015, it was converted into a REIT.
What REITs pay monthly dividends
Realty Income Corporation
In 1969, the firm was founded. Its first commercial property, a Taco Bell restaurant was purchased by it. Realty Income focuses on assets that have significant long-term growth potential and emphasizes low-cost financing options such as stock issuance or debt over mortgages. Triple-net leases are also required. This means the renter will be responsible for taxes, insurance and maintenance.
Chatham Lodging Trust
Chatham Lodging Trust owns nearly 40 hotels of premium brands in 15 states. These include Hyatt Place, Hilton Garden Inn and Residence Inn. Chatham Lodging Trust is currently looking for properties that have a high demand and are undercapitalized.
EPR Properties
EPR Properties specializes in charter schools, movie theaters, water parks, ski resorts, and golf courses, among other educational and entertainment-related facilities. So, EPR looks at value, opportunity, execution, economics, and location as part of its “Five-Star Investment Criteria.
” To recap, EPR seeks assets with a long-term competitive edge, the ability to gain market dominance, and the ability to provide an instant return on investment.
LTC Properties Inc.
LTC Properties oversees over 200 senior-focused healthcare facilities. Among them are skilled nursing facilities, assisted living homes, memory care institutions.
According to its most recent quarterly report, LTC searches for five qualities in a potential property: robust cash flows with an annual return of 7-9 percent, competent operators, defendable market positions, superior building structures, and a suitable regulatory environment.
Author’s Personal Opinion
Many investors seek to generate passive income in a consistent stream. It would be impossible to have a steady stream of passive income. The idea of earning money while relaxing is appealing to everyone. You can create passive income with other strategies in real estate investment.
You might rent out many houses to make monthly rent payments. Alternately you could stockpile REITs in your portfolios and sit quietly to take advantage of regular dividends that are often higher than those from your average stock.
It is important to choose the right strategy to generate passive income from real property. The above highlights will prove to be very helpful in this regard.
Bottom line
A real-estate investment trust (REIT), is a corporation that manages or administers a portfolio. These properties include office buildings, apartment buildings, commercial properties and hospitals. However, some REITs specialize in one type of property.
REITs are popular due to the requirement to pay at least 90% in dividends to shareholders. In some cases, this can result in yields as high as 10%.
Investors trying to generate monthly income find it difficult. They pay out dividends at least once a quarter. Only a handful of companies pay monthly dividends and there are very few that are worth investing in.
REITs are lovely for generating greater returns, but they’re also quite susceptible to the economy. As defaults rose, revenues dried up and facilities sat empty, REIT values plummeted.
REITs also have an effect on interest rates. While REIT prices tend to move in opposite directions, interest rates and REIT price movements are often the same. However, each industry reacts differently. This will be a critical area to keep an eye on, considering the current low interest rates.
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