Owning REITs is a little like owning real estate and a little like owning stocks. Only you get all the advantages of these assets, while minimizing the drawbacks. Here are four reasons why REITs deserve a spot in your investment portfolio...
- Ease of Ownership. Owning a rental property isn’t easy. Owning a REIT is. They trade just like stocks, you can buy today and sell tomorrow. Liquid trading in REITs ensures you won’t get stuck holding a $200,000 property you don’t want. Plus, while you may need to cough up the full $200,000 to buy a property, you can start investing in REITs with as little as $100.
- Buy low and sell high. REITs, just like real estate and stocks, have the potential to appreciate over time. Since 2000, while the S&P 500 appreciated 21%, many REITs increased in value much more. AMT, a diversified REIT gained107%. The healthcare REIT I told Boom & Bustsubscribers about in May 2012, gained 317%.
- Passive Income. In exchange for favorable tax treatment, the IRS requires REITs to distribute to shareholders at least 90% of their taxable income. That means shareholders regularly receive cash distributions. These payouts add several percentage points of income to your bottom line. On average, office REITs currently pay 4.2% in annual yield, while healthcare REITs pay 4.8%, and residential REITs pay 7.1%.
- Diversification. Most investors hear diversification and think “a mix of stocks and bonds.” Yet these asset classes are more correlated than most realize. Investing in real estate, through REITs, is a great way to further diversify a traditional stocks/bonds portfolio. As these assets tend to peak and drawdown at different times, you can expect a smoother ride because you’ll have spread your investment dollars across more asset classes.