Real estate is one of the most common investments among those who are seeking financial stability. But, the question of whether to invest directly in a single physical property or in Real Estate Investment Trusts (REITs) is always lingering. Because a lot of people aren’t familiar with REITs the same way they are with buying a house, they don’t consider the potential there. It makes enough sense – you want to feel like you are making a sound investment and understanding builds confidence. That aside, I think these three points on REITs may just help you build your confidence in the process as an investment strategy:
- 90% Of Profits Distributed As Dividends
- Government Investment Requirements
- Risk Mitigation
90% Of Profits Distributed As Dividends
This is a mandate that attracts many because of the high dividend payout ratio. Not all individual stocks are required to distribute dividends and those that do can stop at any time. This is not the case for REITs which makes them a popular investment for those looking for reliable and sustainable passive investment income. While not all REITs pay off to the same degree, for the most part, they tend to be less risky considering you aren’t solely responsible for a property. This stable profit is often incorporated into a retirement strategy as some REITs pay out monthly dividends as opposed to the majority of stocks that only pay out quarterly dividends.
Government Investment Requirements
To be considered an REIT, the trust must follow a list of mandates set by the federal government in order to stay in compliance. This means that more than three-quarters of the trust must be invested in physical properties, other REITs, or a select group of safe government securities. This ensures that REITs are not making risky investments without informing shareholders. It also allows REITs to be looked at more uniformly than other investments.
Minimizing the amount of risk in investing is a major key to financial success. REITs, if dealt with properly, help to assist in this area as mentioned above. Of course, having a variety of investment types in a portfolio is the single best mitigation tactic, but, when looking at a single investment type, REITs can stack up against the best. Investors that minimize overall risk are typically the most successful in the long term.
Buying a single property not only puts an investor at greater risk, but it also comes associated with far more physical labor and time spent making repairs and finding a lessee for the property. By utilizing REIT’s as part of a balanced investment strategy, you increase the probability of financial success.