REIT Funds

Although the mortgage meltdown of recent years would lead you to believe that investing in real estate is not a wise decision, amazingly enough real estate investment trust (REIT) funds have done quite well. While they are still considered to be speculative, there is a good deal of money to be made when investing in the right fund. However, before investing in REIT funds, you should have a basic understanding of the different types and which ones offer the best investment opportunities for you personally.

Equity, Mortgage and Hybrid REIT Funds
There are three basic types of REIT funds that you can choose from including equity, mortgage and hybrid funds. Equity REIT’s primarily invest in commercial properties that are also managed by the trust whereas mortgage REITs deal with just what the name would imply – owning property mortgages. Hybrid funds are a combination of the two investment strategies as they invest in both mortgages and commercial properties. REITs provide a viable way to invest in real estate without needing extremely large amounts of investment capital.

Basics of REIT Funds
First and foremost, unlike personally owning a piece of real estate or holding a mortgage, REIT’s are publicly traded on the market and can offer the best of all worlds. They trade like stocks but offer the advantages of owning/managing commercial real estate, albeit with a group of other investors. It is possible to buy and sell your shares just as easily as any stock that is traded on the exchange and similar to being a shareholder in public companies, investors can actually receive income from dividends as well as from the appreciation of the value of their shares. However, one of the best benefits of investing in REIT’s is that these funds are actively managed by professionals that are bound by the professional rules of corporate governance.

Benefits of REIT Funds
Besides the obvious benefits of owning publicly traded shares that are actively managed by professionals, the level of liquidity is one of the greatest benefits. Unlike owning a piece of real estate or holding the mortgage yourself, you can quickly sell your shares while it may take months (or years!) to actually sell the property. Also, shareholders sustain no liabilities for any and all debts which may be incurred by the REIT. That being said, REIT’s actually provide low to moderate debt levels which makes them a low leverage investment. REIT funds are required by law to distribute a minimum of 90% of all taxable income to shareholders in annual dividends. Likewise, there is a predictable stream of revenue in Equity REIT’s because of rents that are paid on properties owned and managed by the fund.

Even thought the real estate market is still near the bottom, surprisingly enough REIT’s have done amazingly well. Some experts believe that they are up by about 50 to 60% and they will continue to do well in the foreseeable future. Almost anyone, even with limited startup capital, can invest in REIT funds since the investor is only buying shares and not the entire piece of real estate or the whole mortgage. If you cannot decide which type of REIT fund to invest in, perhaps buying into a hybrid fund would be in your best interest. Many real estate investors got their feet wet in REIT funds to learn the ins and outs of real estate investment strategies. For a list of REIT funds available you can either check the major exchange listings or do a quick internet search. Although speculative, REIT funds are seen as a sound investment at this moment in time.

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