A Guide for New Investors
Looking for a way to diversify your investment portfolio? Consider adding Real Estate Investment Trusts (REITsReal Estate Investment Trust: financial operation designed to allow individual investors to invest in large-scale, income-producing real estate assets without having to directly own or manage the properties themselves. View Definition) to the mix. REITs provide exposure to the commercial real estate market without the high upfront costs and management responsibilities that come with property ownership. As experienced real estate investors here at Wildhorn Capital, we’re going to explain what REITs are, how they work, and how you can use them to achieve your financial goals.
What are REITs?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. REITs typically own a portfolio of properties, such as apartments, office buildings, shopping centers, and hotels. In exchange for investing in the REIT, investors receive ownership in the trust and a share of the rental income and profits generated by the properties.
How do REITs work?
REITs are required by law to distribute at least 90% of their taxable income to investors in the form of dividends. This can make them an attractive investment opportunity for those seeking regular income. Additionally, REITs can provide the benefits of diversification, as they are invested in multiple properties across different geographic locations and industries.
Types of REITs:
REITs can be classified into three main categories:
- Equity REITs: These REITs own and operate income-producing properties such as offices, apartments, or retail spaces. They generate revenue from rent and other fees, and then distribute the profits to shareholders.
- Mortgage REITs: These REITs provide financing for income-producing real estate by either purchasing mortgages or originating and servicing them. Mortgage REITs generate revenue from the interest paid on mortgages or from the sale of mortgage-backed securities.
- Hybrid REITs: These REITs combine characteristics of both equity and mortgage REITs. They hold both physical properties and mortgages, and generate revenue from both sources.
How to invest in REITs:
There are several ways to add REITs to your investment portfolio. One option is to buy shares in individual REITs through a brokerage account. Another option is to invest in REIT mutual funds or exchange-traded funds (ETFs), which provide exposure to a diverse range of REITs. Before investing, it’s important to do your research on the different types of REITs and their investment strategies, as well as their fees and performance history. You can read more about Wildhorn Capital’s investment strategy here.
Real Estate Investment Trusts provide a convenient way for investors to access the commercial real estate market without the high costs and management responsibilities of owning property outright. They offer regular income and the benefits of diversification, making them an attractive investment opportunity for many. With the right research and investment strategy, you can effectively incorporate REITs into your portfolio and achieve your financial goals.
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Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.
