Investing in REITs Ralph L Block for Beginners

Ralph L Block's approach to investing in REITs is all about diversification. REITs, or Real Estate Investment Trusts, offer a way to invest in real estate without directly owning physical properties.

To start investing in REITs, you'll need to choose between closed-end funds and open-end funds. Closed-end funds have a fixed number of shares, while open-end funds allow you to buy and sell shares as needed.

REITs have a minimum distribution requirement, which means they must distribute at least 90% of their taxable income to shareholders each year. This can provide a relatively stable source of income.

Investing in REITs can be a great way to diversify your portfolio and reduce risk.

Real Estate Investment Trusts, or REITs, are a type of investment vehicle that allows individuals to invest in real estate without directly owning physical properties. REITs can be found in various sectors, including General Investment Characteristics, with five main types of REITs.

REITs offer higher current returns compared to other investment options, making them an attractive choice for investors seeking regular income. This is particularly evident in the section Higher Current Returns.

One of the benefits of REITs is that they provide a way to invest in real estate without directly managing properties, making them a more accessible and convenient option for many investors.

Investing in REITs can be a great way to diversify your portfolio and reduce risk. REITs are subject to various risks, but owners can limit them by diversifying by sector, geographic location, and tenant roster.

Diversification is key to minimizing risk, and REITs are no exception. By spreading your investments across different sectors, locations, and tenants, you can reduce the impact of any one particular risk.

Analysts who follow REITs can accurately forecast quarterly results, within one or two cents, quarter after quarter. This is due to the stability and predictability of REITs' rental revenues, occupancy rates, and real estate operating costs.

Long-term leases enjoyed by most commercial real estate owners provide earnings stability and make this asset class more bondlike. This reduces the risk of REIT investments.

There are two basic categories of REITs: equity REITs and mortgage REITs. Equity REITs are the focus of this book, and they have historically provided better long-term total returns, more stable market price performance, lower risk, and greater liquidity.

Equity REITs allow investors to determine the type of property they invest in and often the geographic location of the properties. This gives you more control over your investments and allows you to tailor your portfolio to your specific needs.

Real Estate Investment Trusts (REITs) are required to distribute at least 90% of their taxable income to shareholders annually.

They are pass-through entities, meaning they don't pay taxes at the corporate level.

REITs can be publicly traded or privately held, and they're often used for commercial or residential properties.

A REIT can be categorized as Equity REITs, Mortgage REITs, or Hybrid REITs.

Equity REITs own and manage properties, while Mortgage REITs lend money to property owners.

Hybrid REITs do both, owning properties and providing financing.

REITs can be listed on major stock exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ.

REITs have delivered an average annual total return of 14.0 percent over a 35-year period, outperforming the broader stock market.

Their performance is impressive considering they have lower market price volatility and more limited investment risk. REITs have provided total returns comparable to the S&P 500 index despite having benefits not usually enjoyed by stocks.

REITs must pay out at least 90 percent of their pretax income to shareholders in the form of dividends, resulting in higher current returns compared to other companies. This means investors get paid to wait, providing a steady income even during bear markets.

Their dividend yields are often below those of corporate bonds, but REITs have a long-term track record of increasing dividends on a regular basis, outpacing inflation. This predictability and steadiness in their operating and financial performance helps to dampen volatility.

REIT stocks are generally less volatile than other equities, with a higher dividend yield acting as a shock absorber against daily market fluctuations. This makes them a more stable investment option for long-term investors.

Equity REITs have delivered impressive long-term performance, with an average annual total return of 14.0 percent over the 35-year period ending December 31, 2010.

This is comparable to the returns from the broader S&P 500 index during the same time period. However, REITs have also provided benefits not usually enjoyed by stocks, such as modest correlation with other asset classes and less market price volatility.

REITs have a more limited investment risk compared to other stocks, and they've provided higher current returns. In fact, REITs must pay out at least 90 percent of their pretax income to shareholders in the form of dividends, resulting in higher dividend yields compared to the S&P 500.

Dividends do matter to shareholders' total returns, as they've accounted for approximately 46 percent of the S&P 500's average annual total return since 1929. This is a significant advantage for REIT shareholders, who are legally entitled to 90 percent of the REIT's income each year.

REIT stocks are, most of the time, simply less volatile, on a daily basis, than other equities.

Their higher current yields often act as a shock absorber against daily market fluctuations. This is important because our biggest investment mistakes tend to be the result of fear.

A 35-year period ending in 2010 shows that equity REITs delivered an average annual total return of 14.0 percent, which compares quite well with the returns from various other indices during the same time period.

The volatility of REIT stocks spiked from 2007 through 2009, due to concerns about REITs’ balance sheets and our nation’s space markets, but those issues were pretty much resolved by 2010.

REITs’ higher dividend yields help to dampen the volatility of their stocks. Much of the value of a REIT stock is in the REIT’s current dividend yield, so a modest decline in future growth expectations will have a more muted effect on its trading price.

Low volatility in a stock can make patient and disciplined investors of us all. This is especially true for REIT investors, who can sell some of their shares at prices that are reasonably close to where they were trading a week or a month ago, even in soft markets.

Equity REITs have delivered an average annual total return of 14.0 percent over a 35-year period, comparable to the returns from the broader S&P 500 index.

This is impressive, especially considering that REITs have benefits not usually enjoyed by stocks, such as modest correlation with other asset classes, less market price volatility, and more limited investment risk.

REITs must, by law, pay out at least 90 percent of their pretax income to shareholders in the form of dividends, resulting in higher current returns compared to other companies.

Dividends are a crucial part of total returns, accounting for approximately 46 percent of the S&P 500 index's total returns since 1929.

REIT shareholders are entitled to 90 percent of the REIT's income each year, allowing them to participate in income reinvestment decisions and potentially increase their wealth.

This is a significant advantage over non-REIT companies, where shareholders must accept the decisions of the company's board of directors regarding dividend policy.

REIT stocks' current dividend yields are often lower than those of corporate bonds, but the REIT industry has a long-term track record of increasing dividends on a regular basis, with a growth rate above the rate of inflation.

If you're looking to diversify your investment portfolio, you have several alternative options to consider.

Real estate crowdfunding platforms have become increasingly popular, allowing individuals to invest in real estate development projects with lower minimum investment requirements, often starting at around $5,000.

Investing in a real estate investment trust (REIT) can provide a steady income stream and diversification benefits.

REITs can be traded on major stock exchanges, making it easy to buy and sell shares.

Real estate crowdfunding platforms often have lower fees compared to traditional real estate investment methods.

Real estate crowdfunding platforms can provide access to a wider range of investment opportunities, including properties in emerging markets.

Investing in a REIT can provide a relatively stable source of income, with many REITs paying out a significant portion of their income to shareholders.

Some REITs focus on specific property types, such as office buildings or shopping centers, while others have a more diversified portfolio.