Fidelity Investments REITs Explained for Beginners

Fidelity Investments REITs are a type of investment that allows you to own a portion of a company that owns or finances real estate properties. This can be a great way to diversify your portfolio and potentially earn rental income without directly managing properties.

REITs are required by law to distribute at least 90% of their taxable income to shareholders, which can provide a regular stream of income. Fidelity Investments offers a variety of REITs across different sectors, including residential and commercial properties.

Investing in REITs through Fidelity can be done with a relatively low initial investment, and you can choose from a range of options to suit your investment goals and risk tolerance.

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A REIT, or Real Estate Investment Trust, is a company that owns, operates, or finances income-generating real estate.

REITs provide investors with steady income streams, portfolio diversification, and long-term capital appreciation. They operate similarly to mutual funds, taking money from various investors to finance and manage properties.

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By law, REITs are required to pay out 90% of their return every year to investors, making them not particularly tax-efficient. This means investors don't get to benefit from depreciation and 1031 exchanges like direct real estate investors do.

REITs can be publicly traded, allowing investors to buy and sell shares like stocks and bonds. This provides ready liquidity and transparency, making it easier to diversify at a low cost.

Investors can earn a potentially steady income source from REITs by buying shares in a REIT portfolio that includes various types of properties, such as hotels, commercial real estate, and apartment buildings.

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There are three primary types of REITs: equity, mortgage, and hybrid REITs. Equity REITs buy and operate properties, leasing them out to tenants and collecting rent.

Equity REITs can specialize in various niches, such as warehouses, infrastructure, and data centers. Mortgage REITs, on the other hand, use investor funds to finance mortgages, collecting mortgage payments and earning income from interest.

Mortgage REITs may also buy mortgage-backed securities. Hybrid REITs invest in a mix of real estate properties and mortgages.

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There are several types of REITs, which can be categorized by what they invest in. Equity REITs buy and operate properties, leasing them out to tenants and collecting rent.

Equity REITs can specialize in particular niches, such as warehouses, infrastructure, data centers, and more. Mortgage REITs, on the other hand, use investor funds to finance mortgages and collect mortgage payments from borrowers.

Hybrid REITs invest in a mix of real estate properties and mortgages. This diversification can help reduce risk and increase potential returns.

Another way to categorize REITs is by their structure and regulation. Most REITs are publicly traded, which means they are regulated by the Securities and Exchange Commission (SEC) and listed on major stock exchanges like the New York Stock Exchange (NYSE) or Nasdaq.

Publicly traded REITs are generally easy to buy and sell, and key information about the companies is readily available. Public non-traded REITs, on the other hand, are also regulated by the SEC but do not trade on major exchanges.

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Gaming and Leisure Properties is a REIT that owns 35 casino and hotel properties in 14 states, generating ample cash to fund its dividend and raise it as rental income climbs.

The company recently bought 14 casinos from Pinnacle Entertainment in a deal worth about $5 billion, issuing $1.1 billion worth of stock to finance the acquisition.

With a P/E ratio of 11 and a yield of 6.4%, Gaming and Leisure Properties trades well below the average of 18 for all property-owning REITs, making it a good deal for shareholders.

Jeffrey Kolitch, manager of Baron Real Estate Fund, figures that the firm will bump its annual payout from $2.24 per share to $2.45 within a year, making it a solid investment opportunity.

The company's shares look "mispriced", according to Kolitch, who sees the stock hitting $41 over the next year, presenting a potential upside for investors.

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Investing in REITs is a great way to get exposure to real estate without having to manage a physical property. You can buy shares of publicly traded REITs through your brokerage account, just like you would any other stock.

One way to invest in REITs is to buy a diversified REIT or multiple REITs to have a well-rounded portfolio. This can be done through a brokerage account, where you can place an order for an individual publicly traded REIT using its ticker symbol.

REITs can also be invested in through mutual funds or ETFs that hold REITs. These are professionally managed portfolios that combine your money with that of other investors and invest it in a basket of securities.

A REIT is a company that owns, operates, or finances income-generating real estate. They provide investors with various steady income streams, portfolio diversification, and long-term capital appreciation.

Some of the benefits of investing in REITs include affordability, a passive income stream, easier access to funds, and diversification. REITs make it possible for people who don't have vast amounts of money saved for a down payment to still invest in real estate.

Here are some ways to invest in REITs:

REITs come with a unique set of risks that investors should be aware of. One of the main risks is market volatility, which can affect the value of REIT shares.

Tax rates on dividends can also be a concern, as REIT investors typically owe tax on the dividends they receive, and these dividends are taxed at higher ordinary income tax rates.

Subject to potential market volatility, REITs can be affected by changes in real estate values or economic downturns.

Fees are another consideration when investing in REITs. Fundrise charges a 1% annual fee, broken down into a 0.85% management fee and a 0.15% advisory fee, while VNQ has an expense ratio of just 0.13%.

Additionally, you may incur fees through your brokerage when buying shares of the Vanguard Real Estate ETF.

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Managing unique risks is crucial when investing in REITs. Changes in real estate values or economic conditions can have a significant negative effect on issuers in the real estate industry.

Experienced managers with deep knowledge of individual companies and real estate markets can help investors avoid some of the risks. They can also help investors gain the benefits of diversification, income potential, and inflation hedging.

Investors generally owe tax on the dividends they receive from REITs, and these dividends are typically taxed at higher ordinary income tax rates. Holding REITs in a tax-advantaged account may allow investors to defer these taxes.

There is no guarantee that the issuer of a REIT will maintain the secondary market for its shares. Redemptions may be at a price that is more or less than the original price paid.

Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. This can pose operating challenges for REITs.

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Fees can be a significant consideration when investing in real estate. Fundrise charges a 1% annual fee, broken down into a 0.85% management fee and a 0.15% advisory fee.

The expense ratio of the Vanguard Real Estate ETF, VNQ, is significantly lower at just 0.13% as of September 12, 2024. This is a more appealing cost for investors.

You may also incur fees through your brokerage when buying shares of the Vanguard Real Estate ETF.

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REITs can be a great investment option, but it's essential to consider the pros and cons.

One of the main advantages of REITs is their affordability and accessibility. REITs make it possible for people who don't have vast amounts of money saved for a down payment to still invest in real estate.

REITs offer a passive income stream through regular dividends, allowing investors to enjoy the benefits of real estate investing without much upfront work and maintenance.

Investors can easily access cash by selling their REIT shares, making it a more flexible option compared to owning a property outright.

Diversification is another significant benefit of REITs, helping to offset the risks associated with other investment assets.

Here are some key pros and cons of REITs:

By understanding the pros and cons of REITs, investors can make informed decisions about whether or not to invest in these funds.

Publicly Traded REITs are found on major stock exchanges and can be easily purchased through a brokerage account. They are regulated by the US Securities and Exchange Commission (SEC).

These companies raise money from individual investors and use it to build and manage a portfolio of real estate investments, which can include buying properties and leasing them out to tenants. To qualify as a REIT, a company must invest at least 75% of its assets in real estate and pay out at least 90% of its taxable income annually to shareholders as dividends.

Realty Income is a solid earner with a 550 consecutive month dividend payout streak.

The company has a 98% property occupancy rate, which has never dipped below 96%.

Realty Income's vast collection of properties includes 4,615 buildings, mainly leased to big retailers like Walgreens and Dollar General.

These retailers sign long-term triple-net leases, requiring them to pay for taxes, maintenance, and insurance.

Realty Income expects its funds from operations (FFO) to rise by as much as 4.3% this year.

The company has increased its dividend at an annualized rate of 4.7% since going public in 1994.

At 22 times FFO, Realty Income is one of the pricier REITs, but it's worth considering for its steady monthly dividends.

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Manning & Napier Real Estate S is a great option for those who prefer to buy real estate investment trusts through a fund. It holds 56 real estate stocks, mainly REITs such as mall owner Simon Property Group and storage firm Prologis.

The fund returned 12.4% annualized over the past five years, beating 93% of its peers. However, it comes with annual fees of 1.09%, which are above average.

Fidelity Real Estate Investment is another top performer, returning 12.5% annualized over the past five years. Its veteran manager, Steve Buller, looks for REITs that offer growth at a reasonable price and currently emphasizes health care and triple-net-lease REITs.

The fund yields 2.5% and costs 0.78% in annual expenses, making it a more affordable option.

Publicly Traded REITs can be easily purchased through a brokerage account, just like other stocks or bonds.

They are found on major stock exchanges, and the US Securities and Exchange Commission (SEC) regulates them.

Publicly traded REITs can be subject to market fluctuations in the same way as stocks.

This means their value can go up or down based on market conditions.

You'll owe tax on the dividends you receive from publicly traded REITs, and these dividends are typically taxed at higher ordinary income tax rates.

Holding REITs in a tax-advantaged account may allow you to defer these taxes.

There's no guarantee that the issuer of a publicly traded REIT will maintain the secondary market for its shares.

Redemptions may be at a price that's more or less than the original price paid.

Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry.

Realty Income, a publicly traded REIT, pays out cash monthly, paying about 20 cents per share like clockwork.

It has a 98% property occupancy rate, which has never slipped below 96%.

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