Should you invest in REITs? If you've done any of your own research into investing, no doubt you've heard of them.
But despite being around since the 1960s, REITs didn't take off in the U.S. until the 90s. Since then, their popularity has exploded - but why?
It's because REITs have some unique advantages over other investments.
Looking for more info on investing in REITs? Here are some benefits you need to know about.
1. Portfolio Diversification
Many people cant diversify by going out and purchasing real estate. However, by investing in REITs you can invest in different types of real estate.
Equity REITs own and manage properties and provide revenue via rent. Mortgage REITs lend money to real estate owners, earning income from the interest. Hybrid REITs use both equity and mortgage REIT strategies to generate revenue.
You may have already invested in a REIT without even knowing it. If you have a retirement plan with a target date fund, such as a 401k, odds are at least some of its allocation is in REITs.
2. High-Yield Dividends
A big appeal of REITs is that they are required to distribute 90% of their taxable income to shareholders via dividends. However, dividends provided by REITs may be taxed differently depending on the dividend.
There are 3 types of REIT dividends: ordinary income, capital gains, and return of capital. Most REIT dividends qualify as ordinary income, taxed at your normal income tax rate.
Capital Gains distributions are taxed as long-term gains. However, the return of capital dividends is not taxed. This is because you are essentially getting a portion of your invested money back.
3. Liquidity
If the idea of investing in property is appealing to you, but you don't like the time involved, consider investing in REITs. Unlike a traditional real estate investment, REITs offer liquidity.
Most can be easily bought or sold instantly. Not only does this save you time compared to a traditional real estate investment, but it also ensures your cash flow is not tied up in the process.
4. Hands-off Investing
Real estate investing can be a pain, unless you have a good property management company. In the best-case scenario, you have great tenants who pay on time, but you still have to deal with maintenance and repair issues. Plus when those tenants move out, you have to find and screen for new tenants.
Some investors don't mind that approach. Others outsource it to property management companies like us, who manage properties throughout the Salt Lake City area.
But for many, real estate investing is a time-consuming headache. REITs allow anyone to invest in real estate without the hassle of hands-on ownership.
The Benefits of Investing in REITs
Investing in REITs can be a great way to diversify your portfolio with liquidity. They can also be a great way to receive dividends. If you don't want to be a landlord, consider REITs as a way of taking a hands-off approach to real estate.
Of course, for the best possible diversification, you can always invest in REITs and property of your own. Allow us to manage your Salt Lake City area property for you.
We're a full-service property management company that can handle all aspects of your property. Contact us to find out how we can help.