What are REITs, and why should you invest in them?

Real estate is one of the most lucrative and attractive sectors for investors, as it offers income, capital appreciation, and diversification benefits. However, investing in real estate can also be challenging, as it requires a lot of capital, expertise, and management. Fortunately, there is a way to invest in real estate without buying or managing properties yourself: REITs.

REITs, or real estate investment trusts, are companies that own, operate, or finance income-producing real estate across a range of property sectors. REITs allow investors to buy shares in commercial real estate portfolios, such as apartment buildings, hotels, malls, offices, and warehouses, and earn dividends from the rents and profits generated by these properties.

?REITs are modelled after mutual funds, which pool the money of many investors and invest it in a diversified portfolio of assets. REITs do the same but with real estate assets instead of stocks or bonds. To qualify as a REIT, a company must meet certain requirements, such as investing at least 75% of its assets in real estate, deriving at least 75% of its income from rents or interest, and paying out at least 90% of its taxable income as dividends to shareholders.

REITs are traded on major stock exchanges, and investors can buy and sell them like stocks. This makes REITs highly liquid and accessible, unlike physical real estate investments. REITs also offer transparency, as they are subject to the same reporting and disclosure standards as other public companies.

?What REITs are not

REITs are not the same as direct real estate investments, where you own and control a specific property. REITs are indirect investments where you own a share of a portfolio of properties managed by a professional team. As a REIT shareholder, you have no say in the properties' selection, operation, or disposal, and you have no claim on the underlying assets. You only have a right to receive dividends and capital gains from the performance of the REIT.

REITs are also not the same as real estate mutual funds or exchange-traded funds (ETFs), which are collections of REITs or other real estate-related stocks that track a specific index or sector. These funds offer diversification, a low minimum investment, and professional management, but they also charge management fees and expenses, which can reduce your returns. Additionally, these funds may not qualify as REITs themselves and, therefore, may not enjoy the same tax benefits as REITs.