Real Estate Investment Trusts (REITs) are investments in a piece of a real estate venture. You become a shareholder in a piece of property that consistently produces revenue with less pressure and responsibility than the traditional landlord. It’s a great way to make passive income and diversify your portfolio, but is it the right move for you? These are the pros and cons of real estate investment that will help you decide if REITs are the next best money maker for you.
Types of REITs
There are two types of REITs that you should be aware of before you decide to invest. First, mortgage REITs consist of commercial and residential properties such as hotels, apartments, and shopping centers. Typically, they specialize in a specific field.
Equity REITs are usually more diversified, as in the case of self-storage, healthcare, lodging, and retail. However, most revenue is acquired through rent or interest earned from the mortgage or mortgage-backed security investments.
Pros of Investment
Earning consistent dividends is one of the major pros of investing in REITs. Think of it as not putting all your eggs in one basket. It’s a significant asset in diversifying your portfolio and reduces the risk of losing money by spreading it across different assets and industries.
By being a physical asset, the property can increase over time, thus increasing the amount of return. You also don’t have to pay any corporate tax on REITs, which gives you a higher payout in the long run. In addition, if you decide to back out of your investment, they are relatively liquid and take much less time to sell and turn over than a rental property.
Cons of Investment
The biggest con of investing in REITs is that they are highly influenced by outside factors and sensitive to changes in interest rates and societal trends. For example, while a Korean Barbecue restaurant may be a wise investment one year, its popularity can drop in the next, making it susceptible to price drops and giving you low returns. This can be nerve-racking, as REITs are strictly longer-term investments that are around five years in average length.
Hopefully, understanding the pros and cons of real estate investment will help you decide whether investing in REITs is right for you. If you’re interested in Atlanta area property management services, contact our team to help get you started today!
