In the past, Real Estate Investment Trusts (REITs) provided opportunities exclusive to very wealthy investors and banks. Today, REITs allow virtually anyone to invest in real estate by way of buying their stock either directly, through a mutual fund, or an exchange traded fund (ETF). REITs have proven to be a highly effective way to raise capital by offering a total return investment.
REITs have evolved over the years to meet the changing demands of today’s investors. After all, the real estate market, as you know, has a very broad profile and is ever changing. Deciding on the right path for your real estate investment can be tricky. That’s why it’s in your best interest to let Miser Wealth Partners take care of the leg work for you. Our expert advisors have extensive experience with REITs in East Tennessee and across the country and can help you decide on the best investment path for you.
What is a REIT?
A REIT is an investment in which an individual or company owns, finances, or operates income-producing real estate. Many REITs are publicly traded on a stock exchange, while others may not be publicly traded. REITs receive special tax considerations and typically offer high dividend yields, making them a very attractive investment option. REITs are structured as a corporation and are not typically taxed at the entity level. This allows investors to avoid double taxation on dividends.
How do REITs work?
REITs are generally classified in two ways – equity REITs and mortgage REITS. Equity REITs can involve a wide range of property types which derive most of their revenue from the rent on those properties. Mortgage REITs (or mREITs), on the other hand, get their revenue from interest earned on investments in mortgages for residential or commercial properties. A REIT must pay out 90% of its annual taxable income in dividends, which typically results in a higher rate of dividends than equities or many fixed income investments. The dividends received from REITs are then taxed as regular income.
What are the benefits of REITs?
REITs can offer a slew of financial benefits for investors, including:
- Potential for higher yields
- Accessibility by being listed on a national exchange
- Diversification benefits by following the real estate cycle
- Inflation hedging against rising rates
- And more!
Are there any risks associated with REITs?
Pretty much any investment carries some type of risk, and REITs are no different. That said, some REIT risks may include:
- Real estate risk – fluctuations in property value, leasing occupancy, and geographic demand
- Interest rate risk – rate fluctuations that can affect property values and occupancy demand
- Occupancy rate risk – lower occupancy rates translate to lower rents and negative REIT impact
- Geographic risk – narrow geographic focus where the majority of the property is located in a particular area
- Business risk –susceptibility to the underlying business or industry that leases the properties
Why should I invest in a REIT?
REITs have a long history of delivering competitive total returns based on high, steady dividend income and long-term capital appreciation. They can make an excellent portfolio diversifier and can help reduce overall portfolio risk while increasing returns.
How can I take advantage of REITs in East Tennessee?
All you have to do to get started with this potentially lucrative investment option is to schedule a meeting with Miser Wealth Partners. We’ll discuss your financial goals and devise a plan that offers you the most benefit. Contact us today at (865) 281-1616 or click here to set up a time to talk with us.
