Real estate investment trust (reit)?
Real estate investment trusts (REITs) are investment securities that allow you to invest in real estate that generates income — often commercial properties. REITs offer the ability to invest in real estate without purchasing or managing properties directly. Publicly traded REITs trade on stock exchanges.
Investing in REITs can add some diversification to your portfolio and give you access to passive income, liquidity and excellent long-term returns. However, taxes can be more expensive with REITs compared to other investment options, and there are still risks involved with the real estate market.
Since they aren't publicly available and don't register with the SEC, it's difficult to pinpoint specific investment minimums. However, investment firm Edward Jones says minimum investments for private REITs can range from $1,000 to $50,000.
| # | Name | C. |
|---|---|---|
| 1 | Prologis 1PLD | 🇺🇸 |
| 2 | American Tower 2AMT | 🇺🇸 |
| 3 | Equinix 3EQIX | 🇺🇸 |
| 4 | Simon Property Group 4SPG | 🇺🇸 |
| REIT | Forward dividend yield |
|---|---|
| Blackstone Mortgage Trust Inc. (BXMT) | 12.1% |
| KKR Real Estate Finance Trust Inc. (KREF) | 13.5% |
| Easterly Government Properties Inc. (DEA) | 8.3% |
| Realty Income Corp. (O) | 5.5% |
Here are some of the main disadvantages of investing in a REIT. Market volatility: Value can fluctuate based on economic and market conditions. Interest rate risk: Changes in interest rates can affect the value of a REIT.
While some stocks distribute dividends on a quarterly or annual basis, certain REITs pay quarterly or monthly. That can be an advantage for investors, whether the money is used for enhancing income or for reinvestment, especially since more frequent payments compound faster.
Lack of liquidity -- Once you invest in a private REIT, it can be difficult to cash out. Whereas publicly traded REITs allow you to sell shares instantly whenever the market is open, the same isn't true for private REITs.
REITs are highly liquid; if you need to pull your money out, you simply sell your shares on a stock exchange.
Since most non-traded REITs are illiquid, there are often restrictions to redeeming and selling shares. While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value.
Why not to invest in REITs?
In most cases, REITs utilize a combination of debt and equity to purchase a property. As such, they are more sensitive than other asset classes to changes in interest rates., particularly those that use variable rate debt. When interest rates rise, REITs share prices can be prone to volatility.
REITs allow individual investors to make money on real estate without having to own or manage physical properties. Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making.
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
REITs' average return
Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs. Invest at least 75% of total assets in real estate or cash.
| Ticker | Name | Dividend Yield |
|---|---|---|
| EARN | Ellington Residential Mortgage REIT | 15.71% |
| ARR | ARMOUR Residential REIT | 15.13% |
| AGNC | AGNC Investment | 14.71% |
| EFC | Ellington Financial | 14.01% |
| Stock | Market capitalization | Dividend yield |
|---|---|---|
| Dynex Capital Inc. (DX) | $726 million | 12.2% |
| Horizon Technology Finance Corp. (HRZN) | $454 million | 9.7% |
| Permian Basin Royalty Trust (PBT) | $660 million | 4.2% |
| Pennant Park Floating Rate Capital Ltd. (PFLT) | $713 million | 10% |
REITs historically perform well during and after recessions | Pensions & Investments.
However, our review of REIT balance sheets and debt suggests that REITs are well-positioned for economic uncertainty in 2023 because of their strong balance sheets. They are entering the new year with leverage near historical lows, and well-termed, mostly fixed-rate debt and very low current interest expense.
Publicly traded REITs offer investors a way to add real estate to an investment portfolio or retirement account and earn an attractive dividend. Publicly traded REITs are a safer play than their non-exchange counterparts, but there are still risks.
According to the data, REITs have outperformed stocks over the long term, delivering an 11.9% average annual return from 1972 to 2021 (compared to 10.7% for the S&P 500). At that rate of return, a monthly investment of $300 in REITs would grow into $1 million in about 30 years.
How do you make $1000 a month from dividends?
To have a perfect portfolio to generate $1000/month in dividends, one should have at least 30 stocks in at least 10 different sectors. No stock should not be more than 3.33% of your portfolio. If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1000/month.
While equity REITs typically generate their potential income from rents, debt REITs generate their revenues from the interest earned on the debt instruments. Like equity REITs, mortgage REITs are required to distribute at least 90% of their annual taxable income to shareholders.
REITs are real estate investments so you need to have a long-term horizon and realize that quarterly results really aren't that important. Yet, most investors will trade in and out of REITs based on short-term results/news and are very quick to lose patience if their thesis isn't playing out within a few quarters.
REITs should generally be considered long-term investments
In many cases, this can take around 10 years to occur. And with publicly traded REITs that fluctuate with the stock market, Jhangiani recommends holding onto them for at least three years.
Investors can buy and sell shares of public REITs at any time during trading hours. With private REITs, on the other hand, investors may have to wait for a redemption event, which can occur quarterly or annually, before they can cash out their investment. Additionally, private REITs may charge redemption fees.
