Real estate investment trust (REIT) companies are traded just like stocks in the market. They allow investors to add real estate of various kinds to their portfolios and receive dividends like highly-liquid assets. The three main types of REITs are equity, mortgage, and hybrid.
Most REITs allow investors to not only invest in the company for a share of the profits but to own, operate, and manage the establishment and earn direct income. Revenue through the income-producing real estate properties is generated through rent collection. A Tulsa example of this is the relationship between Simon Property Group (NYSE: SPG) and the Woodland Hills Mall.
Office, retail, residential and hotel, and healthcare, among others — each type of equity REIT has many intricate market factors to consider that an experienced financial advisor at First State can discuss with those considering expanding their portfolios.
Mortgage REITs generate revenue from the interest collected on residential and commercial mortgage loans and mortgage-backed securities rather than the properties themselves. Because the investment is dependent on interest rates, mortgage REITs perform well when interest rates rise relative to equity REITs. Further, those issued by US government agencies like Fannie Mae, Freddie Mac, and Ginnie Mae tend to have lower returns but also lower volatility because the U.S. Government protects them from default.
Diversifying Your Portfolio
REITs, a risk like any other investment, tend to be more liquid than investing in bona fide real estate and provide for stable cash flow. They are also known to provide a way to invest in real estate without signing a building lease and yield higher dividends that are not subject to double taxation. Those not traded on the public market, however, can be highly illiquid.
Diversifying the investment further, investors also have the flexibility to invest in hybrid REITs, which, true to the name, provide the opportunity to invest in both real property and interest revenue collected on them. All REITs, as with other stocks, are subject to taxes on capital gains and dividends.
To start growing with local Tulsa experts, contact the financial planners at First State Investment Advisors today at 918-492-1361.