Angel Bernal Robles has experience as a Risk Management Specialist where he was responsible for underwriting debt and equity commercial real estate transactions including industrial, office, commercial and residential projects. In the following article, Angel Bernal Robles discusses REITs as a low-risk investment opportunity in the real estate market.
No investment is ever a sure thing but investing in real estate comes pretty close.
And if it’s through a real estate investment trust, the chance of long-term financial success may be even greater.
REITs have exploded in popularity since they were established by Congress in 1960 to provide Americans from all income levels with the opportunity to invest in real estate. Today about 150 million Americans are in households — 45% of the country’s population — hold REIT investments and REITs own about 575,000 properties in the U.S.
REITs can be particularly lucrative investments as well. In 2021, REITs distributed over $92 billion in dividend income to shareholders. Interested? Angel Bernal Robles discusses everything to know before investing in REITs.
Angel Bernal Robles Explains REITs
A real estate investment trust is a company that focuses on making investments in real estate that generate income. Individuals or organizations can access REITs by buying shares of the REIT. Then the real estate the REIT owns can be added to one’s investment portfolio.
Angel Bernal Robles explains that REITs were created to provide an affordable way for Americans to not only invest in real estate but to diversify portfolios, making them less risky overall. The shares-based model of REITs is similar to the way a mutual fund investment works. Like mutual funds, REITs are managed professionally by a fund manager or a group of managers who create and implement an investment strategy.
Shares of REITs can be traded like a traditional stock, but there are also forms of REITs that are not traded publicly. More than 200 publicly traded REITS change hands on an exchange and can be bought through a traditional brokerage account.
Public non-traded REITs are not available on a stock exchange but can be bought from a broker involved in other non-traded public offerings. Angel Bernal Robles says that private REITs are unlisted and have far fewer disclosure requirements compared to public REITs.
Angel Bernal Robles says that there are three main general types of REITs. They can be described by the investment type, such as a mortgage REIT, by the way shares are traded, such as an exchanged-traded REIT, or by the real estate sector. REITs can own a wide variety of properties, such as hotels, apartment complexes, storage facilities, and shopping malls.
About 24% of investments in REITs cover either individual retail stores or shopping malls, with most money generated from rent. Residential REITs are also common, especially those that own or run apartment buildings, manufactured housing, or other forms of single- and multi-family real estate.
Angel Bernal Robles notes that as Americans age, healthcare REITs are expected to rise in popularity. They cover properties such as hospitals, retirement homes, nursing facilities, and medical centers. Money is generated primarily through Medicaid or Medicare reimbursements, occupancy fees, or through private payments.
How REITs Work
Since they were created by the federal government, REITs have requirements set by the Internal Revenue Service.
REITs are required to return a minimum of 90% of taxable income through yearly shareholder dividends, at least 75% of a REITs’ overall assets must be in either cash or real estate. REITs must also have at least 75% of their gross income from real estate holdings or rent, or interest on mortgages.
In addition, Angel Bernal Robles says that a REIT must have at least 100 shareholders after it has been around for a year, and it cannot have more than 50% of its shares held by five or fewer people during the last half of each taxable year.
Like all forms of investments, there are advantages and disadvantages tied to REITs.
Angel Bernal Robles explains that publicly yarded REITs often come with the most advantages and fewer investment complications. Since REITs must pay 90% of their income each year as shareholders’ dividends, they typically have some of the highest dividend yields found in the stock market. Because of this, REITs are considered a solid bet for a steady flow of income.
Other pros of REITs include reliably high returns — they can even outperform equity indexes returns — and REITs that are publicly traded are very easy to buy and sell, making them attractive to investing newbies (plus, there’s no need to worry about all the complications that come with real estate, such as physically managing properties or hiring staff).
Angel Bernal Robles also notes that REITs usually are considered less volatile than similar investments, such as traditional stocks, because they come with larger dividends.
With over 150 million Americans benefiting from REIT investments, it’s evident that this model has struck a chord with a diverse range of investors. The inherent diversification and professional management associated with REITs make them an appealing choice for those seeking to fortify their investment portfolios while minimizing risk.
From the reliability of high returns to the ease of buying and selling, REITs offer a host of advantages that set them apart in the investment landscape. The steady flow of income they provide, coupled with their comparatively lower volatility, positions them as a valuable asset class in any investor’s toolkit.
In the pursuit of financial prosperity, exploring the realm of REITs is a strategic move that aligns with the quest for enduring wealth. As Angel Bernal Robles astutely elucidates, understanding the nuances of REITs equips investors with the knowledge and confidence needed to navigate this thriving sector, ultimately paving the way for a more secure and prosperous financial future.