How to Invest in Real Estate - Real Estate Investment Trusts (REITs)

Investing in real estate is an expensive venture that is often met by individuals who should be looking to invest in Real Estate Investment Trusts (REITs) instead. At a much lower cost than actually investing in real estate, a REIT can easily be accomplished on the stock exchanges through the click of a button. Real Estate Investment Trusts are legal entities that are set up to avoid double taxation to the investors who have taken positions in such companies. As long as the property investment trust distributes 90% of its taxable income, the company can be classified as a REIT.

What this means for investors is that they can expect a steady stream of income payments in the form of dividends. Likewise, the publicly traded REITs like those trading on the stock exchanges have greater access to capital which means larger portfolios of property that are invested in. For the investor, REITs offer numerous advantages over strict property investment as an individual. Because of the larger access to capital, REITs tend to be diversified with their larger property holdings. This allows for the dispersion of risk for the investor. Easy entrance and exit out of the market allows for liquidity in transactions. Higher capital also allows for greater investment in more valuable properties or properties that an individual would never have been able to afford by himself.

The capital appreciation of the company through the value of the stock also provides an artificial valuation and volatility factor that allows for fluctuations in the trust's true value. While this can be perceived as being a negative attribute, a comprehensive understanding of the company's inherent holdings value can allow for opportunities in over- and under-valuations for buying points and selling points when taking a position in the company. With steadier income streams and the necessity of the trusts to distribute earnings to their shareholders, such REITs offer the possibility for increased returns on a rising market and an increased dividend yield in a decreasing market. Even as the great recession of our time takes hold of the market, the deflation of the REITs stock prices have only resulted in a very high yield average across the sector when contrasted to other sectors. Even as many REITs have resorted to paying this dividend out in the form of stock, the residual income a person can get from selling such shares allow for solid income in the face of a crummy market.

Most importantly, however, the unique benefit for an investor wanting to enter into real estate via REIT investment is his capability to buy according to his financial capacity without entering into a mandatory long-term commitment to the investment. Whereas the ability for a person to sell a house right after buying it is hindered by transaction costs of time & money, a REIT investor simply needs to click a button to be freed from his investment.