Real estate investment trusts (REITs) have become an increasingly popular way for investors to gain exposure to the real estate market. REITs allow investors to invest in portfolios of income-producing real estate assets without having to purchase, manage or finance properties themselves. REITs provide investors with steady dividends, diversification, potential growth and low volatility. Reid real estate investment can provide stable cash flows in both good and bad markets through REIT dividend distributions. This article will examine the benefits of adding REITs as part of a balanced real estate investment portfolio.
REITs provide steady income through dividends
One of the main appeals of REITs is that they provide consistent dividend income. REITs are required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends. The dividend yields of REITs are on average higher than those of stocks. REIT dividends can help provide portfolio income and balance out the volatility of stock holdings.
REITs offer diversification and help reduce risk
Adding REITs to an investment portfolio provides greater diversification across asset classes. Since REITs have low correlation to stocks and bonds, they can help reduce overall portfolio risk and volatility. REITs also invest in a wide range of real estate sectors including offices, apartments, warehouses, hotels, shopping centers, healthcare facilities, etc. Investing in multiple REIT sectors can provide diversification within real estate.
REITs provide opportunity for capital appreciation
In addition to dividend income, REITs also provide the potential for capital appreciation over time much like direct real estate ownership. As rental income increases, demand grows and property values rise, the value of REIT shares can also increase generating capital gains for investors. Many REITs also pursue acquisition and development strategies to actively boost growth.
REITs can play an integral role in a diversified real estate investment plan by providing steady cash flow, diversification, growth potential, inflation hedge and low volatility. Adding exposure to commercial real estate through REITs can enhance a portfolio.