When the economy goes down, the government pays special attention to developing infrastructure and real estate. So, it can be put on the list of reliable sources of income for the investors. And with that, a question arises “is real estate investment trusts a good career path?”
In order to get the answer to this particular question, one needs to know all the minute details about the real estate investment trusts or REITs. So, first, we should get the answer of “What is a REITs or real estate investment trust?”
What is REITs or Real Estate Investment Trusts?
If you are looking for the answer to the question “is real estate investment trusts a good career path?”, initially, you need to know the definition of real estate investment trusts or REITs.
Think of an investment fund, or as they call it, security that invests in those real estate properties, which have the potential to generate incomes. This is called REITs or Real Estate Investment Trusts. A company of shareholders owns and operates the particular fund.
They also contribute money in order to invest in commercial properties, i.e., apartment buildings, office buildings, hospitals, warehouses, shopping malls, hotels, timberland, and student housing. Special tax consideration is also there for real estate investment trust, which offers high returns to the investors. It is also traded publicly on a stock exchange.
What are the Requirements of Managing a REITs?
Just like mutual funds, real estate investment trusts also allow both big and small investors to put their money in it in order to acquire ownership. It is governed by some rules and regulations in order to offer investment opportunities along with a strong income vehicle.
Here is the requirement for investing in REITs:
- A board of directors or trustees has to manage it.
- At least 90% of the taxable income has to be paid to the investors.
- At least 75% of the gross income has to come from real estate investments.
- At least 75% of its overall assets have to be invested in real estate, treasuries, or cash.
- At least 100 investors or shareholders should be included in any Real estate investment trusts or REITs, and none of the investors or shareholders can hold more than 50% shares.
The Types of REITs
If one question, “is real estate investment trusts a good career path?” is wondering in your heart, you must know about REITs in detail. And for that, the types of REITs are also important enough.
There are three types of real estate investment trust in the market. They are
1. Equity REITs
Equity REITs is invested in properties and considered commonly used REITs. Here the income comes in the form of rent, especially from leasing warehouses, office spaces, and hotels. The income is distributed to shareholders as dividends.
2. Mortgage REITs
Now comes the Mortgage REITs. I hope from the name the basic concept of income is clear. Yes, it lends money to real estate owners or buys existing mortgage-backed securities in order to earn the income. This investing activity divided the income from the margin among the earned interest on the mortgage loans and the overall cost of funding this loan.
3. Hybrid REITs
As the name suggests, it is a combination of both the previous REITs. In this case, the revenue comes from both the interest income and rent. Here investments in properties are also made along with mortgaging the owning properties.
Is Real Estate Investment Trusts a Good Career Path?
When we are searching for the answer to the very question “is real estate investment trusts a good career path in 2021?” we must know the benefits that it offers along with all the drawbacks that this investment has.
By understanding both the drawbacks and benefits, you will make the right decision on making real estate investment trusts in your career. So, let’s head to the benefits first and, after that, the negatives of REITs as your career.
Benefits of Investing in REITs
Here are the benefits that REITs offers us:
- Liquidity: The shares of real estate investment trusts can be easily bought and sold in the market.
- Transparency: Real estate investment trusts traded on major stock exchanges that operate under the same rules, which other publicly listed securities also follow for reporting and regulatory purposes.
- Performance: As a result of the long-term appreciation of all commercial properties, REITs has a history of good performance.
- Diversification: Usually, real estate investment trusts have a very low correlation to other asset classes’’ performance. So, when other securities or stocks are going down, it is beneficial to have a REITs investment portfolio.
- Dividends: 90% or more profits are returned to the investors. It is considered a stable income source.
Drawbacks of Investing in REITs
Here are the drawbacks that REITs brings with it:
- Investment Risks: There are some factors that affect the real estate market, such as interest rates, property valuation, geography, debt, interest rates, and lastly, tax laws. So, due diligence must be considered.
- Minimal Control: Investors have no authority to control the operational decisions, such as the strategies applied to the trading market along with the ownership of property.
- Higher Tax Payments: Most dividends are taxed the same as regular income apart from the 15% rules.
- Slow Growth: I have mentioned earlier that 90% of the income is returned to the investors, the rest 10% only reinvested back into the business. This makes the growth slower.
- Management Fees: there are some real estate investment trusts which charge high administrative and transaction fees. This lessens the overall payouts to investors.
I hope after going through this article, you get your answer whether you should choose REITs or real estate investment trusts as your career or not. In case you want to know more about REITs or how to invest in REITs, you can comment or let us know. We will try to guide you with that through our articles.