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Why You Should Invest in Real Estate Investment Trusts – The Motley Fool

Without getting too technical, think of a REIT as something like a mutual fund that invests in real estate, and derives the lion’s share of its income from renting that real estate out, usually to other b…….

Without getting too technical, think of a REIT as something like a mutual fund that invests in real estate, and derives the lion’s share of its income from renting that real estate out, usually to other businesses. It’s a way for you and me to own real estate without the hassles of being a landlord. No leases to sign. No phone calls in the middle of the night to come fix the leaky toilet. No long-term financial commitment to a piece of ground or a building. Just a share in the profits.

Why invest in REITs? I’ll give you 5 reasons.

Superior returns

REITs have historically earned slightly better returns than stocks. I thought stocks were the all-time champions, didn’t you? But from 1972, when REITs first began being tracked as a sector, through 2021 — a period of 50 years — equity REITs returned an average of 13.5% to investors, while stocks returned 13.1% as measured by the Standard & Poor’s index.

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Less volatility

REITs are less volatile than common stocks. The ride is much smoother. Although REITs go through sell-off periods just like all other asset classes, the ups and downs are less severe. So if stocks are a roller coaster, REITs are more like a water slide: still fun and adventurous, but smoother and slower, with less extreme ups and downs.

Generous dividends

REITs on average pay higher dividends than ordinary stocks. This means a more consistent stream of income for you and me, the investors. In fact, REITs are required by law to pay out at least 90% of their annual taxable income as dividends. In exchange, they get a dividend-paid deduction from corporate tax for every dollar they distribute, and you and I get a nice flow of cash. Sound like a good deal?

Great retirement benefits

REIT dividends grow tax-free in a Roth IRA. No matter how much cash your REIT investments generate in your Roth, you don’t pay a penny in taxes until the day you withdraw the money, on two conditions. First, you must be at least 59.5 years old when you begin withdrawing, and second, your Roth IRA must be at least 5 years old.

Easier than other real estate investing vehicles

REITs offer significant convenience, compared to other ways of investing in real estate. REITs are bought and sold like stocks. You can buy in or sell out any time you like, with the click of a button. This is not true of land or buildings. When you buy land or buildings, typically you make a long-term commitment, sign a mortgage, and pay interest. Then …….

Source: https://www.fool.com/investing/2022/04/05/why-should-you-invest-in-real-estate-investment-tr/

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