Have you ever considered investing in real estate, but the idea of actually purchasing real estate properties isn’t as appealing? You should consider investing in a real estate investment trust, also known as REITs! REITs are companies that have at least 75% of their assets invested in real estates. Investors can buy stocks of these companies and earn profitable dividends. Not all companies invest in the same types of buildings, but many choose to focus on a single type of property. Before choosing an REIT to invest in, you should know about different types of REIT investment strategies.
- Retail
Retail Real Estate Investment Trusts solely focus on retail properties, such as shopping centers and standalone stores, and earn profits from leasing space to tenants. 24% of all REITs invest in retail properties; although they were strong performers, the demand for retail properties is heavily influenced by the economy. Before investing in an REIT, pay close attention to how the retail industry is performing. If commonplace retailers are declaring bankruptcy, closing hundreds of stores or reporting slow sales, you should hold off on investing in a retail REIT. - Residential
Residential Real Estate Investment Trusts specialize in residential rental properties. These REITs are directly impacted by the prices of homes and mortgage interest rates; when homeownership is more expensive and less attainable, people are going to flock to rental options. Residential REITs perform best in areas with high rental costs, large populations, and low unemployment. When investing in a residential REIT, look for a market with booming job growth and a scant amount of vacancies. - Healthcare
As the longevity of life increases, the demand for healthcare stays strong. Healthcare Real Estate Investment Trusts own hospitals, nursing homes, retirement communities, and other medical facilities. They primarily profit off Medicare and Medicaid reimbursements and occupancy fees. Unlike other companies, healthcare REITs are not permitted to manage most of the facilities they own (except for medical offices); instead, the owners hand off operational duties to a third-party that leases the facility from the company. Before investing, be sure to select a REIT with a diverse spread of properties and customer bases. - Office
Office Real Estate Investment Trusts lease office space to tenants and third-party management companies, gaining money from rental fees and management fees. There are three types of buildings that office REITs typically purchase: Class A, Class B, and Class C. As you can infer by the ranking system, Class A buildings have huge, state-of-the-art facilities and prime locations in metro business areas. With decent locations and slightly lower rent, Class B buildings are a more modest option that may have been categorized as a Class A building years ago. Class C buildings are at least 15 years old, are small in size and located outside of a city or commercial area. Look for an office REIT in a city with a strong economy and low unemployment rate. - Mortgage
Some Real Estate Investment Trusts profit off real estate mortgages, not actual properties. These REITs buy mortgages and loan money to help fund mortgages, collecting their earnings from loan interests. Mortgage REITs are affected heavily by changes in interest rates—high rates lead to higher costs of financing, which lowers the value of loans. Mortgage REITs make up 10% of the REIT market, and with high dividend yields, they make a good investment.
