Real Estate Investment Trusts (REITs) own income-generating assets across the property sector in the US. Most major REITs are publicly traded on a US stock exchange like NYSE or NASDAQ.
Investors who buy REIT stocks can indirectly invest in the real estate market and reap its rewards. If you’re wondering how REITs earn money, it’s pretty straightforward.
REITs generate income by leasing out or renting out their assets (property). Listed REITs own roughly $2.5 trillion worth of assets and have a stock market capitalization of $1 trillion.
This blog will give you a factual outlook on the pros & cons of REIT stocks. Towards the end of the blog, we’ll help you understand how to invest in the best REIT stocks using Cube Wealth.
Important: We strongly suggest you consult a Cube Wealth Coach before investing your hard-earned money in any US stock.
Top 10 Best REITs To Invest In For 2023
Apple Hospitality REIT
ARMOUR Residential REIT
Brookfield Property REIT Inc.**
Bluerock Residential Growth REIT Inc
City Office REIT
CareTrust REIT Inc
Global Medical REIT
Sabra Health Care REIT Inc
**BPYU was de-listed from Nasdaq on 26-07-2021.
What Are REIT Stocks?
REIT stocks are publicly traded on US stock exchanges. When investors buy a REIT stock, they invest in a portfolio of real estate assets that reaches far and wide into the property market.
The assets may include:
REITs may focus on one type of property sector or multiple property sectors. Their profits change according to their focus but historically, REIT stocks have generated relatively lucrative returns.
Some REIT stocks are trading above their pre-COVID levels which may be viewed as a positive sign considering industries like the aviation sector are still clawing their way back to the top.
Apple Hospitality REIT Inc
Bluerock Residential Growth REIT Inc
As per law, REITs are required to distribute at least 90% of their taxable income to shareholders through dividends. Some REITs end up distributing 100% of their taxable income in the form of dividends.
Types Of REIT Stocks
Before delving into the various types of REIT stocks, it’s important to note that the underlying principle of REITs remains the same - they invest in real estate property.
1. Healthcare REITs
Healthcare REITs invest in hospitals, retirement homes, medical centres (clinics), nursing centres, etc. Healthcare REITs primarily generate income through occupancy fees and private fees.
Overall, the performance of Healthcare REITs is directly related to the performance of the healthcare sector. But other factors like an ageing population and patient demographics also impact Healthcare REITs.
2. Retail REITs
Retail REITs invest in shopping malls, standalone retail stores, and other retail buildings. Retail REITs generate income through rent and occupancy fees.
If the retail sector is experiencing a downturn, its impact will affect the performance and profitability of Retail REITs. Moreover, a large set of consumers have shifted to online shopping.
Thus, you must speak to a wealth coach to understand if you should invest in a Retail REIT.
3. Residential REITs
Residential REITs invest in rental family apartment buildings, gated communities, and manufactured housing units and represent a significant portion of the REIT family.
Conventional logic states that prime real estate may be located in bustling areas where buying a house may be difficult for a majority of the population.
This may force individuals and families to rent an apartment which drives up the demand and profit generated by these rental properties. Residential REITs leverage this but may suffer when the real estate market is down.
4. Office REITs
Office REITs invest in office spaces - buildings, complexes, and sometimes coworking spaces. Their primary source of income is through long term lease agreements and periodic rent renewals.
The pandemic has led to a drastic switch from physical office buildings to fully digital workspaces. However, Office REITs have a stronghold in major areas where energy or manufacturing employees work.
Going online poses a major logistical challenge to these industries which is why they may still require office spaces often located in prime locations.
Mortgage REITs don’t invest in equity which means that they almost always do not physically own real estate portfolios. Instead, they invest in mortgages on the secondary market.
Mortgage REITs generate income through interest payments as they finance income-producing real estate investments.
Watch this video to know more about the benefits of using an app like Cube Wealth
Benefits Of Investing In REITs
1. Dual Benefit Of Stocks & Real Estate
REITs help investors buy into the benefits of investing in both real estate and stocks. Given the historical performance of REITs, this dual benefit may be one of the biggest advantages of investing in REITs.
Like we discussed before, REITs are required to distribute at least 90% of their taxable income to their shareholders in the form of dividends. Some REITs even distribute 100% of their taxable income.
Given the market capitalization, purchasing power and the demand for real estate, REITs have been known to provide competitive dividends over the years.
This may be a potentially positive aspect of investing in REITs for investors who are on the lookout for possible passive income generating assets.
3. Easy To Understand
If you’ve read our blogs on the tips to invest in any equity-linked asset, you know that understanding the stock you’re investing in is crucial to getting the best out of the investment.
REITs fare very well in this regard since the REIT business model is simple to understand - REITs own a portfolio of real estate assets that generate income through rent or mortgage interest payments.
Risks Of Investing In REITs
1. Rising Interest Rates
Historically, REITs have been known to underperform when the interest rate rises. Investors may turn to safer, fixed income assets like bonds during such cases.
But you can mitigate this risk by getting US stock advice from expert RIA, Rick Holbrook who offers US Stock Advisory via the Cube Wealth App.
2. Low Liquidity
While REITs can be publicly traded, REITs are less liquid than other stocks. This is down to two factors:
Repurchase offers do not guarantee completely or even partial sale of the desired REIT stocks
It may be difficult to find a buyer immediately in case an investor wants to quickly liquidate the REIT stock for cash.
The Cube Wealth app allows you to buy the best US stocks for as low as $1. There are two ways you can choose to invest in REIT stocks using Cube Wealth:
Advisory: Get buying and selling advice from RIA Rick Holbrook, who has 40 years of experience and ~$130 million AUA
DIY: Buy REIT stocks on your own of companies like Apple Hospitality REIT Inc; Brookfield Property Reit Inc; Washington REIT
1. What are the risks associated with investing in US REITs?
Ans. Risks include economic and market factors that can impact real estate values, interest rate changes, and specific property risks, such as vacancies and property management.
2. Can I invest in US REIT stocks through retirement accounts like an IRA or 401(k)?
Ans. Yes, many retirement accounts allow investments in US REIT stocks, providing tax-advantaged ways to participate in real estate.
3. Is it possible to diversify investments within the REIT sector?
Ans. Yes, it's possible to diversify within the REIT sector by investing in different types of REITs, such as those focused on residential, commercial, or specialized properties.
4. How do I track the performance of US REIT stocks?
Ans. You can track the performance of US REIT stocks through financial news, online financial platforms, or by consulting with a financial advisor.
Investing in US REIT stocks in 2023 presents an opportunity for diversification, income, and potential capital appreciation within the real estate sector. The top ten US REIT stocks listed in this guide cover a broad spectrum of property types and offer different investment propositions. As with any investment, it's important to consider your financial goals, risk tolerance, and the specific conditions of the real estate market when selecting the right REITs to invest in. Careful due diligence, ongoing monitoring, and diversification within the REIT sector can contribute to a well-rounded investment strategy. For personalized guidance and to make informed decisions, consulting with a financial advisor is recommended to ensure that your investments align with your unique financial situation and objectives.
Watch this video to know how US stock advice works on the Cube Wealth app
Note: Facts & figures are true as of 25-03-2022. None of the information shared here is to be construed as investment advice. Exercise caution when investing in assets like stocks, mutual funds, alternative investments, and others.
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