ARE YOU CONSIDERING INVESTING IN A REAL ESTATE INVESTMENT TRUST AS AN ALTERNATIVE?
Many publications list the most advantageous ways to invest in real estate. The option of investing in a real estate investment trust (REIT) is among them.
What is a REIT?
In practice, a REIT it is a unique type of company that allows investors to pool their money to invest in real estate assets. Some REITs simply buy properties and rent them to tenants while others develop properties from the ground up. Some don’t even own properties at all and rather choose to focus on the mortgage and financial sides of real estate.
One can think of a REIT as a mutual fund for real estate. Any number of investors buy shares and contribute money to a pool. Professional managers of these funds then decide how best to invest it in income-generating real estate.
In this way, REITs allow you to invest in real estate without the physical real estate playing a major role.
REITs are not without complexities. Consider for example, where the REIT’s income is derived predominantly from rentals received from tenants renting space from the REIT, the current low rental uptake adversely affects the REIT’s income. And while the REIT holds the properties it owns as assets, its loan obligations may be substantial.
Before investing in such a company, as opposed to the property itself, obtain proper advice regarding the advantages and risks relating thereto.