Publish of the day
Discover a new writer we each day.
January 17, 2021

5 REIT Investment Tips to Avoid Foreclosing on Your Finances

Front Page
London at night
Photo Credit: Anthony Tyrrell | Unsplash

Looking to invest in real estate but don't want to deal with the maintenance and upkeep that comes with it?

With a Real Estate Investment Trust (REIT), you can do just that. In fact, 80 percent of investment advisors recommend including REITs in their client's portfolios.

Keep reading to discover five noteworthy REIT investment tips you can't afford to miss out on.

1. Look for High Dividend Yield

When constructing a balanced portfolio, it is essential to include at least some equities with a high dividend yield. The dividend yield shows you how much a company will pay you in dividends relative to its stock price.

When investing in real estate investment trusts (REITs), it is recommended to look for a high dividend yield. The reason for this is most of the returns that come from owning REITs will come in the form of dividends as they are not typically high growth companies.

The good news is usually REITs pay a higher dividend because to be classified as a REIT they must pay at least 90 percent of taxable income to shareholders.

Dividends are a great way to start compounding returns. Compound returns are when you are making money not only through the principal but through reinvested dividends as well. In other words, your money is making money.

It's important to keep in mind some REITs have a high dividend due to the price of the equity falling.

2. Commercial vs. Residential

Different REITs have different holdings within their portfolio of assets. REITs operate in many different sectors including

  • Retail
  • Hotels
  • Malls
  • Single-family homes
  • Warehouses
  • Data Centers
  • And medical buildings

When choosing what REIT to invest in, it is crucial to do your due diligence on the industry. Some industries are more vulnerable to downturns when the economy isn't performing well. For example, hotel REITs are especially vulnerable when the economy is in a recession.

3. Diversification

Another thing to look for when investing in a real estate investment trust is the diversity of its holdings.

Often REITs will be invested in thousands of properties across a few different industries to lessen the risk associated with them.

Look for safer REITs that invest in places of substantial economic opportunity in industries that are not as exposed to economic downturns. For example, REITs invested in data centers are in a good position even during a recession. The reason being data centers are necessary for internet usage and also for corporate activities.

4. Debt

One of the best REIT investment tips is to look for REITs that have a proven history of managing debt and still paying dividends.

It is common for real estate investment trusts to have a notable amount of debt. The more important thing to look for is how well they manage it.

5. Property-Specific Risks

Like with any stock or equity that is traded on the open market, REITs come with their risks. During the financial crisis of 2008, REITs, like every other stock, had a significant decline.

One thing to look for when deciding what REIT to invest in is the risks associated with the holdings.

As previously mentioned, look for REITs that are well-diversified and can withstand economic downturns.

For More REIT Investment Advice

When making your first REIT investment remember to look for high dividend yield, diversified holdings, and a company that has a proven history of managing debt. Real estate investment trusts provide an excellent opportunity to invest in real estate and watch your money grow.