≡ Menu

Average REIT Returns and Other Must-Know Facts About This Profitable Investment Option

What’s a better investment, buying a rental property or investing in REITs? The average REIT returns have been more than 10 percent annually over the last 20-30 years. 

This makes investing in REITs a very attractive investment. They’re stable and reliable, which is perfect for any type of investor who seeks to grow their money.

Read on to find out more about REITs and how your money can grow using these type of investments.

What is a REIT?

If you’re not familiar with REITs, we’ll go over the basics. A REIT is a real estate investment trust. It’s a broad brush stroke to describe investing in a real estate that’s very similar to investing in a mutual fund.

A company has real estate assets like mortgages or properties, and these funds offer ownership to investors. You can put your money in real estate portfolio like you would a mutual fund.

These REIT companies generally have income-generating properties like condos, commercial space, rental properties, or a combination of them. The REIT company has income from these properties, which is then distributed to members. That’s your share of the profit.

What makes REITs a wonderful investment is that you’re technically a shareholder in properties without having to deal with the typical issues property owners have to manage. You don’t have to worry about advertising properties, finding the right tenants, property taxes, building maintenance, improvements, and landlord/tenant law. You also don’t need to be concerned with real estate commissions, either.

Types of REITs

As you dig into REITs, you’ll find that there are several different types to REITs you can invest in.

Mortgage REITs

Mortgage REITs, or mREITs for short, finance real estate deals that will produce income. They purchase the mortgage or securities from the bank that originated the loan and make money on the interest. If you’ve ever owned a home and had a sudden switch in mortgage companies, odds are it was a part of an mREIT.

Publicly Traded REITs

These are real estate investment trusts that are traded on stock exchanges. Since they’re publicly traded, they are subject to strict financial requirements and regulations. The Security Exchange Commission oversees publicly traded REITs.

Since they’re regulated, there will be higher fees and slightly lower returns. Before you get down on the regulations, you have to realize that the regulations also protect you as an investor and keep these REITs as a low-risk investment.

Non-Listed REITs

These REITs meet all of the requirements of the SEC, but they’re not listed on a stock exchange. Even though they’re not listed anywhere, they are still a good option because they meet all of the tough requirements to be listed. They’re registered with the SEC, too. They’re just not traded publicly.

Private REITs

Private REITs are not regulated, nor are they listed publicly on the stock exchanges. They’re also not held to the same regulatory standards as a public or non-listed REIT.

You have to be very careful about private REITs. While the average REIT returns  that are private may be more than the other REITs, there’s a much higher risk involved.

Not all private REIT companies are created the same, and some might just want to rip you off. The Financial Industry Regulatory Authority issued a warning to investors about these types of companies. 

What You Need to Know About the Average REIT Returns

Now that you know what REITs are all about what else do you need to know about them? A lot.

REITs are Simple but Complex

REITs are simple investments, but there is a lot that you need to know to make the most out of your investment. There are companies that can help you decode the complexities of REITs. You can learn more about that here.

Did You Know That There are Global REITs?

Have you ever dreamed of owning properties around the world? Well, you can sort of do that by investing in global REITs.

Understand How REITs are Taxed

With different types of real estate investments come different ways to be taxed on investment income.

Take a rental property. You buy a property, fix it up, rent it out for a while, and then you sell that property to buy a bigger property. How are you taxed on that? If you’re able to use a 1031 exchange, you won’t be taxed on the profit from the sale of the property.

It’s a bit different with REITs. As the REIT companies pay out dividends to shareholders, your earnings are taxed as income.

Watch Out for Volatility

REITs aren’t all rosy all the time. There’s a surprising amount of volatility that comes with these investments. Since they are publicly traded investments, for the most part, they are subject to the same ups and downs of the stock market.

They’re a Great Long-Term Investment

The best way to treat a REIT investment as a long-term investment strategy with low risk. If you need something a bit more aggressive and need bigger returns now, this isn’t the investment for you.

You’re better off trading on Forex or in the stock market.

If you want something safe and secure for the next 10 years or more, you can use REITs to ride out the volatility and still come out ahead.

Why REITs? The Average REIT Returns are  Steady

When you’re looking at ways to invest in real estate, there are countless ways to do it. You can buy a property and flip it. You can buy a property and rent it out. You can invest in a home construction company.

You can also invest in REITs. The average REIT returns over the last few decades have shown steady growth, making is great if you want a low-risk, long-term investment. In the short-term, however, expect to ride out a bit of volatility.

Would you like to know how you can get started in real estate? Take a look at this article about bridge loans.