INVESTING IN REIT(s)
A few years ago during the “boom” era of real estate, it was very common to receive advice from friends, colleagues, and family that investing in real estate was absolutely essential to building wealth. Today, those words of advice regarding real estate investing aren’t as prevalent. Despite the pessimism today, nothing has changed! Real estate is still an excellent investment, a great way to generate income, and an essential building block for creating wealth. The major difference between the days of the real estate “boom” and today’s real estate “slump”, is that investors are going to actually have to do some work and perform due dilligence.
A great way for small investors to participate in real estate investments without committing a large amount of capital, without purchasing real estate directly, and without having to get involved in day to day operations of real estate management is by purchasing REIT(s). According to the definition provided by Wikipedia:
A Real Estate Investment Trust or REIT is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable, into the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.
Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms.
REITs can be classified as equity, mortgage or hybrid.
One of the main reasons why I like REIT(s) is the diversity of choices among REIT(s) listed on national stock exchanges. Each particular REIT may have it’s own niche with a certain sector of real estate. For example, if I wanted to invest in a REIT that owned and managed property solely for hospitals and medical centers, it does exist. If I wanted to invest in real estate and wanted to avoid investing in commercial space such as shopping centers, malls, and industrial space, I could avoid it completely by doing my research and performing due diligence. If I wanted to invest in residential real estate within a certain geographical area, I could just examine the real estate holdings of various companies, and pick those that are inline with my personal investment objectives.
Peter Slaton, the gentleman in this video clip mentioned American Campus Communities, Inc. (ACC: NYSE), a REIT that specializes in the acquisition, design, financing, development, construction management, leasing and management of student housing properties. Peter used the term , “niche players”. This is very important to note. These “players” are seasoned, savvy, and experienced real estate investors that concentrate on a certain segment of the market. They are not “speculators” or “flippers”. They are actively involved and manage the day to day operations within their niche, and they understand their business. As of 10/30/09, American Campus Communities, Inc. year to date stock price performance has been approximately 31.9%. One of it’s main competitors, Education Realty Trust, Inc., year to date stock price performance has been approximately -4.0% as of 10/31/09.
If you are interested in learning more about REIT(s) or are interested in investing in them, there is an abundance of information on the internet readily available to you. You can sign up for an account with online brokerages such as Scottrade, Etrade, or TD Waterhouse.
