Where To Buy Reits
DiversificationREITs can provide diversification benefits because they tend to follow the real estate cycle, which typically lasts a decade or more, whereas bond- and stock-market cycles typically last an average of roughly 5.75 years.
where to buy reits
Buller says he's added exposure in his fund to what he calls "smart risk" sectors, such as hotels, casinos, and strip-malls where he sees significant pent-up demand. On the other hand, he expects a likely reduction in future demand for office space and is also watching to see how the shift toward remote work could influence demand for apartments, as telecommuters reconsider where they are able to live while still earning a living.
Miranda Marquit has been covering personal finance, investing and business topics for almost 15 years. She has contributed to numerous outlets, including NPR, Marketwatch, U.S. News & World Report and HuffPost. Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors.
That said, some real estate experts are bullish on a rebound for 2023. "After a difficult year where the 250-basis-point rise in corporate bond yields caused a widespread valuation reset, this year is setting up to be an improved environment for public REITs," says Bob Thomas, co-head of Americas real estate securities at DWS Group.
Investors willing to look beyond the usual REIT sectors like office, retail and health care can potentially find some hidden gems in specialty sectors. "Our favorite is in the document storage space where industry leader IRM has a very attractive setup for 2023," Thomas says. This REIT offers secure records storage, shredding and information management services for businesses around the world.
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Sun Communities (SUI (opens in new tab), $143.15) is America's leading owner/operator of manufactured housing, recreational vehicle (RV) parks and marinas. SUI's existing portfolio is made up of 352 manufactured housing communities, 179 RV parks and 131 marinas. Additionally, the REIT boasts a strong development pipeline consisting of 9,000 manufactured housing sites and 7,000 RV sites (opens in new tab). Sun Communities' portfolio occupancy levels are 97.1% in North America and 91.7% in the U.K., where it owns 55 RV holiday parks.
REITs date back to 1960 when Congress established them as an amendment to the Cigar Excise Tax Extension, which allowed investors to buy shares in commercial real estate portfolios. Since then, REITS have grown to the point where, today, NAREIT estimates that REITs collectively own about $3 trillion in assets across the US.
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REITs can work in different ways depending on the type of REIT you invest in. Typically, REITs invest in a specific type or multiple types of real estate. These can include single-family or multi-family residential real estate, office buildings, malls, hotels, data centers, storage facilities, and more. Some REITs focus on one segment, such as commercial real estate, whereas others invest in several areas in the real estate market.
When you invest in a REIT, you actually own part of the company that holds the physical real estate properties. One of the most common types of REITs is a publicly traded REIT. These REITs are traded on public stock exchanges where you can buy and sell a share of the REIT during market hours, as you would with shares on the stock market.
Some REITs are regulated by the SEC, whereas others are not. The regulations may state what type of financial statements and other information the company must share with its investors. If you invest in a non-regulated REIT, you may not get as much information about your investment in a timely manner.
Residential REITs focus on properties where people live. They make money by owning the properties and renting them out to tenants. These properties can include single-family homes, apartment buildings, manufactured homes, and even housing for university students.
How active do you want to be in your real estate investment? If you want a hands-on experience where you are 100% responsible for the property's management, including managing tenants, maintaining the property, and collecting rents, then buying physical property may be what you want.
If you'd rather have a passive investment in the real estate sector while still collecting monthly rental income, and having real estate exposure, consider a REIT where you invest in real estate. Still, your initial investment is much lower, and you don't have any responsibility regarding property management.
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In most cases, individual investors opt for publicly traded REITs, but there may be certain circumstances where a non-publicly traded REIT may be a good fit. The vast majority of individual investors who invest in REITs choose equity REITs.
As long as REITs follow the rules laid out by the IRS, they are able to claim special tax treatment, notably they are not taxed at the entity level. Instead, the income and profits are passed through to shareholders, where they are taxed at the individual level. This avoids double taxation and helps drive higher returns for investors. Additionally, the 2017 Tax Cuts and Jobs Act allows a pass through deduction of up to 20% on dividends received by investors. This means that investors can deduct 20% of the dividend income received from REIT investments.
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Naturally, questions about interest rate hikes cloud the narrative for the broader residential property ecosystem. Still, people need somewhere to live, affording Apartment Income REIT critical relevance. Moreover, AIRC offers some attractive fiscal attributes. For example, the market prices AIRC at a trailing multiple of 6.43. In contrast, the sector median value pings at a lofty 13.81.
The assumptions underlying this exercise may not be true in practice. For example, banking institution servicers may be reluctant to increase their market share. In some cases, this reluctance may stem from concerns about breaching the 10 percent deduction threshold, particularly in a scenario where a banking institution is considering acquiring the servicing portfolio of a large nonbank. For example, as of the fourth quarter of 2015, four banking institution servicers that had a significant presence in the servicing market would have been able to take on the entire servicing portfolio of the two biggest nonbank servicers (Nationstar and Walter) without the acquiring banking institution breaching the deduction threshold in the revised capital rule; six banking institution servicers would have been able to take on the entire servicing portfolio of any of the five largest nonbank servicers (Nationstar, Walter, PennyMac, Quicken, and Ocwen) without breaching the threshold.114 In other cases, a banking institution's reluctance to increase its servicing portfolio might stem from the higher costs of servicing loans and the banking institution's experiences with nonperforming loans during and after the crisis. Offsetting this consideration to some extent is the fact that the compensation for servicing loans might increase after the nonbank firms left the market. This increased compensation might offset any increases in capital costs and might also induce new servicers to enter the market.
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