If you are interested in or have been following the financial markets,undoubtedly, you have run across the term Real Estate Investment Trust (REIT). But, unfortunately, there needs to be more clarity about what a REIT is and its purpose in a real estate portfolio.
As REITs have risen in popularity in the real estate industry, many people are investing in them and finding employment there.
Whether you are interested in REITs as an investor or wondering if it’s a good career pathway, this article will help educate you on what a REIT is, how they work,who they are for, and what it may be like working in one.
What are REITs?
Simply put, REITs are a way for investors to pool their money in orderto make real estate investing more accessible. Similar to how it would bevery difficult or impossible for the vast majority of people to manufacture,market, and service a brand-new smartphone, they can still reap thefinancial rewards of such a business by investing in Apple stock.
The initial cost to begin real estate investing may not be as high as itis to design a smartphone, but it is still high enough to keep many peoplefrom ever getting a foot in the door. Even a modest single-family rentalhome can easily be over $100,000, and with a 20% downpayment on abank loan, coming up with cash is too high for many people.
This barrier to entry keeps many people away, not to mention thetime and expertise it takes to market and manage the property effectivelyand efficiently. That example is just a simple rental home. The costs quickly reach millions when investors enter commercial real estate properties.
Many REITs offer investors shares, similar to shares of stock. The shares are listed on major stock exchanges on which the stocks in your 401(k) are listed. The REITs invest in real estate projects and then return the profits to the investors via a dividend. As the profits rise and fall, so does the value of one share trading on the exchange.
Difference Between REITs and Syndications
A syndication is a similar type of investment, although there are criticaldifferences between a syndication and a REIT. The most significant difference is the size of the initial investment.
Syndications, like REITs, are when investors pool their money to invest in a collective real estate project. However, a syndication will generally have far fewer investors, a much more significant minimum investment, and the shares are far less liquid.
The minimum investment on a syndication is generally at least$25,000, and the shares, once purchased, cannot be quickly sold if the investor wants to exit.
In addition, syndication investors must also be accredited, whichmeans they must meet specific investment requirements. Usually, therequirement is a net worth of at least one million dollars, not counting theequity in one’s primary residence.
On the other hand, shares of REITs are bought and sold daily on thestock exchange and are open to anyone with a brokerage account. With only a few hundred dollars, or even less, anyone can become a real estate investor thanks to REITs.
Why Do Investors Like REITs?
Not only are REITs great for everyday investors because they makereal estate investing is more accessible, but there are some rules andregulations that REITs must follow to return their profits to theinvestors in the form of a dividend.
By law, REITs must pay out 90% or more of their taxable profits as dividends to their shareholders. As a result, REITs are typically considered some of the most yield-friendly asset classes, especially during a recession or other economic hardship.
When the economy sours, or simply a company’s profits fall forcompetitive reasons, often they will decide to hoard cash and cut theirdividends. Similarly, companies may also choose to cut their dividend inorder to have some money available for capital investments needed to grow theirbusiness.
These reasons make dividends from stock investments a bit toounreliable for investors who want or need to depend on them. REITs, by law, must pay out their profits in the form of a dividend. This problem is eliminated, making REITs an ideal asset class for investors looking for areliable dividend.
What Kind of REITs are There?
Like how mutual funds publish a prospectus listing what types of securities they invest in, REITs do the same thing. In the prospectus, the REIT lists what real estate investments they will purchase with the investors’ money.
Investors will be looking for different types of realestate projects to invest in. This is because there are many different properties, such as office spaces, apartments, hospitals, schools, and warehouses.
There are different types of real estate properties, and thereforeThere are thirteen different kinds of REITs in the real estate market. Although in some instances, there can be some overlap in the properties of each RIET.
Types of REITs are:
Office REITsown and manage properties that house workplace offices.Everything from skyscrapers in Chicago’s Loop to office buildings inthese types of REITs’ can hold business parks in small cities
Industrial REITsown and manage properties such as warehouses anddistribution centers and even factories where manufacturing is taking place.
Retail REITsown and manage retail properties and rent space in thoseproperties to retail tenants. These can be anything from small strip mallshousing independent merchants to massive shopping malls, outlets, and big box stores.
Lodging and Resorts REITsown and manage hotels and resorts that rentspace to guests in tourism and travel.
Residential REITsmostly own apartment buildings, but the real estate shakeup of 2020 related to the pandemic attracted some REITs to singlefamily homes at scale for the first time.
Timberland REITsinvest in a land where timber is harvested for sale.Healthcare REITsown and manage properties that house facilities such as hospitals, nursing homes, and medical office buildings.
Self-Storage REITsinvest in storage facilities that collect rent from bothindividuals and businesses.
Infrastructure REITsinvest in projects such as energy pipelines, fiber optic cables, and wireless telecommunications towers.
Data Center REITsown and manage facilities related to cloud computingand data storage. Managing these properties involves skills likeuninterrupted power supply, climate control, and physical security.
Diversified REITs can own a variety of properties, making them perfect forthose are seeking diversification.
Specialty REITs,as the name implies, usually own specific types ofproperties that do not fit into the other categories. For example, they may own movie theaters, billboards, or farms.
Mortgage REITsinvest in mortgage-backed securities or similar assetsthat provide financing for real estate projects.
REITs as a Career
The popularity of REITs as an investment option has also resulted in aboon for employment there. Many great paying jobs areavailable for those with various skill sets, making a real estate investment trust a good career.
You may find work as aproperty managershould you decide to workfor a REIT. A property manager in a REIT may oversee many properties asa senior manager, or a junior manager may oversee one propertywhere they spend most or all of their time. These jobs usually requireexcellent people and communications skills and customer servicesince they often deal directly with the tenants.
Business Developmentexecutives are the ones who identifyopportunities for new properties or developments would be a great job if you have excellent business acumen and are good at financial analysis and projections.
Asset Managersin a REIT decide how best to pay for or finance newor existing assets and projects. For example, they may analyze whether it is wise to take on new debt, acquire new properties, or use available cash to pay down existing debt.
Acquisitions Analystsresearch whether a property would be a goodasset for the organization to own or whether a new project should beundertaken. These jobs are great for people who know the real estateindustry or want to learn and have a knack for negotiating and preparingagreements.
REITs can be a great place to invest and make a career. The jobs can be high paying and grow in abundance as REITs increase in popularity and the size of the assets they manage.
