Title: How to Invest in REIT A Step by Step Guide
1How to Invest in REIT A Step-by-Step Guide
- A real estate investment trust, or REIT, can be
an excellent type of dividend stock to invest in.
Not only do REITs often produce above-average
dividends, but they can produce excellent returns
over time as property values rise.
21. Know why REITs Can be Good Investments
- Equity REITs were created to make investing in
commercial real estate accessible to everyday
investors. For example, before REITs existed.
32. Learn the Basics of how REITs Work
- In a nutshell, REIT invest in commercial
properties, either by acquiring them, or
developing them from the ground up. The
properties are then rented to tenants, and the
rental income generated is used to distribute to
shareholders as dividends.
43. Know The Different Types of REITs
- While there are some diversified REITs, most
specialize in a single property type. This isn't
an exhaustive list, but common REIT specialties
include
54. Understand the Risks Involved
- It's important to realize that, just like any
other stocks, REITs have their own set of risks
investors need to be aware of. Interest-rate risk
is a big one, as higher interest rates tend to
create downward pressure on REIT stock prices.
65. Know The Right Metrics to Use When Evaluating
REITs
- REITs are unique types of companies, and because
of this, it's important to use the right metrics
when evaluating them. Specifically, traditional
accounting methods don't accurately reflect
income and valuation for real estate businesses.
76. Understand The Tax Implications of REIT
Investing
- Because of their favorable tax treatment, REIT
dividends generally don't qualify for the
same preferential dividend tax rates as most
other stocks. Unless the REIT distribution is
specifically classified as a return of capital.
87. Open a Brokerage Account and Buy Your First
REIT
- As long as you've educated yourself on REIT
investing basics, you should be able to create a
portfolio of REITs that can provide income and
growth in your portfolio, while still letting you
sleep at night.
98. Advantages of a REIT
- Income is generated from rent received.
- Access to large commercial real estate projects
- Entry and exit is easy
- The correlation of REITs to the major indices is
low compared to other industries. Therefore they
may be an attractive addition to a portfolio
based on diversification. - The value of the REIT increases as the value of
the real estate increases too therefore the share
price will go up.
109. Disadvantages of a REIT
- Targeted on one particular sector of real estate.
If this sector does not perform well it may lead
to a substantial decrease in the investors
money. - The dividend payments are not guaranteed and the
real estate market is subject to cyclical
downturns - Performance can be dependent on
demographic/economic factors. An overabundance of
construction activity may negatively affect
performance of REITs in that area. - With 90 required to be distributed to holders
each year, only 10 of annual profits can be
invested back into the business. REITs grow more
slowly than the average stock as a result.
1110. A REITs Ideal Environment
- REITs and real estate in general can do very well
in an environment where interest rates are
gradually rising as a result of an improving
economy. Their balance sheets are oftentimes
shielded from the impact of rising interest rates
due to their laddered maturities and limited debt.
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