Tell a friend you’re going to invest in a REIT and they’ll probably ask you why?
After all, most people get their start in real estate investing by buying a single family home, them progress into smaller multifamily or apartment buildings.
On the commercial side of real estate investing, people often get their start by buying a small office condominium or a building for their own business. Then, they branch out from there.
What all of these have in common is that they involve direct ownership of the real estate, something that a REIT does not.
What Is A REIT?
A REIT is a real estate investment trust, which is a form of group ownership of some or more pieces of property. REITs can be asset class specific, for example investing only in apartment buildings. Or they can be more generalized, holding a mix of real estate assets and targeting a specific return or investment strategy.
REITs can also be public or private.
An example of a large, publicly held REIT traded on the New York Stock Exchange is Equity Apartments (symbol EQR).
Privately held REITs have become more commonplace since the passage of the JOBS Act in 2012. This allows smaller, non-accredited investors to put some of their capital into privately held REITs.
Three Reasons To Invest In A REIT
Unless a real estate investor is dead-set on owning properly directly, there are several advantages to investing in a REIT.
#1 Indirect Ownership of Property
This is an advantage because the real estate investor doesn’t have to get involved with the day-to-day issues of leasing or property management.
#2 Access To Class A Property
While the definition of Class A property varies from market to market, in general this term refers to only the newest or most updated property, with the best amenities, and national or regional tenants.
#3 Invest In Multiple Asset Classes
When a real estate investors buys directly they usually have limited resources, meaning they can only purchase one or two properties. Investing in a REIT allows people to potentially own a mix of property across different real estate asset classes.
Is Investing In A REIT Right For You?
Since different investors have different investment strategies and objectives, only the investor can answer this question for sure.
But given the way the real estate market is growing, and the advantages that REITs offer, many people are finding that putting some investment capital into a REIT is a good way of diversifying their real estate investment portfolio.