Do you think real estate investing is out of your league? Think again. With the benefit of an REIT (Real Estate Investment Trust), the high-paced and exciting cosmos of real estate investing is within your grasp.
What is an REIT?
Think of a REIT like a tax shelter for investors wanting to put money into real estate without getting their “hands dirty” in the acquisition process. Unlike garden-variety field investors, REIT holders, don’t actively buy and sell property, they actively buy and sell shares in a property.
Where to start?
REIT investing is far easier than what you might think. In fact, there are five types of REITs ripe for the picking in today’s recovering market.
Over one quarter of all REIT’s are tied up in shopping malls and various retail locations. Think about the last shopping center you visited; that property is probably owned by an REIT. However, before investing in retail real estate, examine the retail industry itself. If it is financially healthy and exhibits recession-proof qualities, it is a sound investment. If not, it might not be the best time to jump into retail REITs.
All retail REITs make money from rent charged to tenants. If retailers experience poor sales and cash flow becomes an issue, those retailers could delay or even default on their rent, and eventually be forced into bankruptcy and evicted. Invest only in retail REITs with the strongest anchor tenants out there. For example, grocery and home improvement stores should top your list as recession proof retailers.
These investments operate multifamily rental apartment buildings as well as manufactured housing. The best apartment markets tend to be where home affordability is low in relation to the rest of the country. In places like New York, Los Angeles, Miami or Chicago, the high cost of single-family homes forces more people to rent, driving market prices up. When considering residential REITs, focus on large urban centers.
Healthcare REITs invest in things like hospitals, nursing facilities, doctor’s offices, retirement homes, nursing homes and outpatient facilities. Success in healthcare REIT’s is directly dependent on the healthcare system. As the baby boomer generation inches ever closer to retirement, healthcare REIT’s appear to be a solid investment in 2012 and beyond.
Diversify your REIT portfolio by finding properties in economic strongholds. For example, if you own several average buildings in New York City, you would net more profit than owning shares of one building in Des Moines. Commercial real estate will rarely steer you wrong in the REIT market.
Like other investments, getting the edge on the market requires copious study and due diligence. If you want to be successful in REIT investing, talk to an investment professional in order to glean the best available advice before jumping head first into the REIT pool unprepared.