A real estate investment trust (REIT) largely focuses on large-scale, income-producing real estate properties. As Scott Tominaga mentions, a REIT allows individual investors to gain better access to an expansive portfolio of large properties without needing the substantial equity required to purchase and manage such properties themselves. REITs help lower the barrier to entry for investors in the real estate market, and allow them to enjoy regular income and better liquidity.
Scott Tominaga provides a brief overview of real estate investment trusts or REITs
A real estate investment trust (REIT) implies to a company that invests in a wide variety of income-producing properties. These properties can be both commercial and residential. Through REITs, one can invest in storage facilities, farmland, casinos, medical offices, gas stations and several other types of properties. REITs receive income from the properties they own and subsequently distribute at least 90% of this income to the shareholders. Real estate investment trusts have been around since 1960, but they have especially become widely popular over the last decade or so, as a means for more investors to access the real estate market. Investing in REITs can especially be a great way to diversify an investment portfolio beyond the stock market.
Asset allocation involves investing in a good mix of asset class, like bonds, stocks, cash and real estate. By opting to invest in REITs, in addition to other types of investment securities, one would be able to mitigate a certain level of risks associated with each asset type. The stock market, for instance, can become more volatile in the short term in comparison to the real estate market. REITs also provide real estate investors with the chance to diversify their real estate holdings. This diversification can be difficult when one opts to buy individual investment properties, due to the large amount of cash necessary.
There are many people who want to invest in the real estate market but do not have tens of thousands of dollars saved up to make a sizable down payment. Making regular mortgage payments is also not easy for several people. For all such individuals, investing in REITs would be a good idea. One might even be able to buy fractional shares of a REIT if they cannot afford a full share.
REIT shareholders receive regular dividends based on their holding in the company. These dividends can be provided monthly, quarterly or on an annual basis. In case one is in or nearing retirement, or just desires to build a passive income stream, investing in REITs can be a great way to receive regular income without having to do anything. Apart from regular income payments, REIT investors may also take advantage of price appreciation for their shares. Much like stock prices, REIT prices can also fluctuate over time.
As per Scott Tominaga, REITs allow investors to simply buy and sell shares by logging in to their brokerage account and making a trade. This liquidity ensures higher flexibility in the investments, and allows people to access cash whenever necessary.
