Learn the Basics of REITS & REIT Investing
Modeled after mutual funds, REITs historically have provided investors of all types regular income streams, diversification and long-term capital appreciation. Investors can purchase stock in equity REITs and mortgage REITs. Equity REITs own properties in a variety of real estate sectors, such as retail, office and residential.
A REIT (pronounced REET), or real estate investment trust, is a company that owns, operates or finances income-producing real estate. Modeled after mutual funds, REITs historically have provided investors of all types regular income streams, diversification and long-term capital appreciation.
REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. These are the characteristics of REIT-based real estate investment.
Most REITs are traded on major stock exchanges, but there are also public non-listed and private REITs. The two main types of REITs are equity REITs and mortgage REITs commonly known as mREITs.
- Equity REITs – a company that owns or operates income-producing real estate.
- Mortgage REITs – mREITs provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
- Public Non-listed REITs – PNLRs are registered with the SEC but do not trade on national stock exchanges.
- Private REITs – Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.
REITs invest in the majority of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels. Most REITs focus on a particular property type, but some hold multiples types of properties in their portfolios.
What are some Notable REIT-Owned Properties?
Just three miles away from Boston's financial district, Federal Realty Investment Trust's Assembly Row in Somerville, Massachusetts, sits on land once occupied by brownfields and decaying industrial buildings. The mixed-use development, which includes an assortment of retail, dining, entertainment, office and residential spaces, is credited with helping to transform the local economy. Federal Realty's commitment to the project included significant investment in environmental remediation and new infrastructure to serve the site.
An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).
A broker, investment advisor or financial planner can help analyze an investor’s financial objectives and recommend appropriate REIT investments.
Investors also have the ability to invest in public non-listed REITs and private REITs.