How to Invest in REIT A Step by Step Guide - PowerPoint PPT Presentation

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How to Invest in REIT A Step by Step Guide

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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. – PowerPoint PPT presentation

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Title: How to Invest in REIT A Step by Step Guide


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How 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.

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1. 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.

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2. 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.

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3. 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

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4. 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.

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5. 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.

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6. 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.

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7. 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.

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8. 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.

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9. 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.

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10. 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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