REITs 101: Understanding the Basics

Welcome to our new four-part series on mastering REIT investments! In this series, we’ll dive into the world of Real Estate Investment Trusts (REITs) and how they can be a valuable addition to your investment portfolio.

We’ll start with part one, which is all about understanding the basics of REITs. You can find the other articles in this series below:

Part 2: Seven Types of Equity REITs

Part 3: Six Key Metrics to Watch for REITs

Part 4: Building a Diversified REIT Portfolio

Let’s dive in to Part 1: Understanding the Basics of REITs.

What are REITs?

At their core, REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors. They offer a way for individual investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves.

Why Consider REIT Investing?

REITs can provide several benefits:

1. Income Generation: REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends, making them a reliable source of income.
2. Diversification: Including REITs in your portfolio can diversify your investments, reducing overall risk.
3. Liquidity: Unlike direct real estate investments, publicly traded REITs can be bought and sold on major stock exchanges, offering high liquidity.

Types of REITs

There are three main types of REITs:

1. Equity REITs: These own and operate income-producing real estate. Think shopping malls, office buildings, and apartment complexes.
2. Mortgage REITs: These provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities.
3. Hybrid REITs: These combine the investment strategies of both equity REITs and mortgage REITs, owning properties and investing in mortgages.

Getting Started

Investing in REITs can be as simple as buying shares through your brokerage account, much like purchasing stocks. Look for REITs with strong management, a track record of performance, and properties in high-demand locations. One good place to start your research is with our top Smartscore-ranked REITs, which you can find online here.

In the next article in this series, we explore the seven types of equity REITs in more detail so you can make informed decisions about which ones might be right for your portfolio.

Part 2: Seven Types of Equity REITs