Should You Invest in REITs Instead of Buying a Real Estate Property as an Investment?
Of all the lies and false hope associated with the pursuit of passive income and the quest to be your own boss, one of the most insidious and persistent rumors is that owning real estate properties as an investment is easy money. Anyone who has ever rented out a real estate property to tenants knows that being a landlord is as much work as any job that pays you an hourly wage. The people who want to make money by owning real estate but do not want to be involved in the day-to-day work of being a landlord involve a middleman of some sort. If you decided to rent your old house out instead of selling it, when you moved to a new house, you might engage the services of a property management company to act as a liaison between you and the tenant. This still means raising the capital to finance your investment property and paying someone to manage it, so at best it makes you a small-time real estate investor, limited by your modest capital. The big money is in commercial real estate, and your best hope is to own a small share of big properties. To find out more about investing in real estate investment trusts, contact a Bronx real estate attorney.
What Are REITs?
Real estate investment trusts (REITs) are like mutual funds, except that they own real estate properties instead of stocks and bonds. They pay out the income they receive from the rents on these properties in the form of dividends to the shareholders in the REIT. REITs can own almost any kind of real estate property, but most of them own properties that only the largest corporations would have enough capital to buy. For example, REITs might own shopping malls, warehouses, data centers, office buildings, hospitals, or even pieces of infrastructure, such as cell towers, bridges, or energy pipelines. Your return on investment varies according to the value of the properties owned by the REIT.
The law requires REITs to operate legally as corporations. They must pay at least 90 percent of their revenues to shareholders as dividends, whether on a monthly, quarterly, semiannual, or annual basis. No more than 50 percent of the shares in the REIT can belong to five or fewer people.
Staying Out of Trouble With REIT Investing
REITs are generally a safe investment. The safest choice is to invest in public, exchange-traded REITs. Another option is to invest in public REITS that are not exchange traded; you can find these by consulting an investment broker or financial adviser. Private REITs also exist, but these are much riskier. Because there is less transparency, private REITs are a hotbed of investment fraud.
Schedule a Confidential Consultation With a Bronx Real Estate Attorney
A real estate lawyer can answer your questions about REITs and other matters related to real estate investing. Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.
Source:
investopedia.com/terms/r/reit.asp
