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Tax Advantages: A REIT that pays at least 90% of its taxable income to shareholders, pays zero corporate. As a result, these REITs have a lot more money to distribute to shareholders than a regular company with an equivalent taxable income. This means you will receive almost 5% extra return.
No Need to Fix Leaking Toilets: When investing in physical commercial real estate, you have to hunt for the right property, raise capital if you do not have it, prepare complex documentation of the property and lose on the property. Once you won the property, you will need to perform due maintenance to prepare it too rental. After all this, you need to perform all the necessary property management activates, including finding tenants, during regular maintenance and collecting rentals. Alternatively, you many ire a property manger to do all the above in exchange for a fee that could be as high as 25% of the rental income eating away your margin.
When you have invested in a REIT, you do not directly buy real estate. This means that you do not have to worry about property management or complex legal documentation.
Consistent Dividend Income: REITs collect most of other income from rentals or interest. Interest and rentals are period based payments and is often unaffected by market adversities. Thus, REITs are bound to generate consistent income despite being an equity REITs are bound to generate consistent income despite being an equity REIT or mortgage REIT.
REITs are legally required to pay 90% of their income to share holder which product a high divided.
Portfolio Diversification: The classic portfolio composition 60% stocks and 40% bonds is longer a viable investment strategy. Stocks and bonds are exposed to unforeseeable market conditions such as a pandemic, bear and full market conditions or geopolitical uncertainties.
Having an investment portfolio of only stock or only bonds expose y9u to too much risk and potentially lower returns. For example, AAA rated corporate bonds return a nominal annualized return of 5.60% over the 15 years between 2001 and 2021.
Liquidity and transparency: Physical real estate is an illiquid asset. This means it could be hard to dispose of when you want cash. On top of that you do not have the choice of selling portions of the property as it is mostly inseparable. This means that your hard earned money is tuck in the form of a property till you find a buyer.
REITs are publicly listed just like any other stock you own. It is quite easy to dispose of shares held. You also have the freedom to dispose a portion of your REIT investment which is impossible with a physical property.
Anyone can enter into real estate market: A major hurdle towards entering the real estate market is its capital extensive nature. One of the most attractive feature of REITs are the low capital requirement needed to start investing. Anyone with as little low capital requirement needed to start investing. Anyone with as little as 10 dollar can start investing in REITs shares are trading as low as 10 dollars.
