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How to invest in REITS and real estate funds

REITs Investment
When investing in real estate, it’s important to be aware of the options available to you. REITs and real estate funds are the two most important vehicles for diversifying your investment portfolio, but what’s the difference between them, and how can you know which one suits your needs best?

HOW TO INVEST IN REITs?

A REIT—a real estate investment trust—is a kind of corporation that invests in income-producing real estate. Investors essentially buy and sell shares in commercial real estate just like stock, and then earn income from their shares.

There are three main varieties: equity REITs, which own and operate real estate; mortgage REITs, which lend money to real estate owners directly through mortgages and loans; and hybrid REITs, which are a combination of the two.

REITs allow individual investors to earn income from property without buying, managing, or financing real estate. Revenue either comes from rents or from the interest earned on mortgage loans.

HOW REAL ESTATE FUNDS WORK

The other option is real estate funds, which operate very much like any other mutual fund. These can either be managed actively or passively, in the latter case by tracking the performance of a benchmark index.

There are, once again, three main varieties: real estate exchange-traded funds that own the shares of real estate corporations; real estate mutual funds; and private real estate investment funds that are professionally managed and only available to high-net-worth investors.

Where REITs invest directly in real estate, these funds invest in REITs and real estate companies, and only occasionally in the individual properties. They gain value mostly through appreciation, offering a broad selection of assets, but little short-term profit.

CHOOSE YOUR METHOD WISELY

REITs and real estate funds are the best way to invest in real estate without having to own and manage properties. They both have different benefits: REITs are useful for generating a steady flow of income from the get-go, making them ideal for short-term profit. Real estate funds, meanwhile, are better for long-term investors, generating value through appreciation over time.

Which method is more appropriate to you depends on your immediate needs—choose wisely. 

 

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