Whenever there is a downturn in the economy it can certainly be painful for all involved. With this being said, however, such a situation does present opportunities to those who are cash-rich, hard-working, and willing to take calculated risks. Today we will focus on one potential option for those working within real estate: real estate investment trusts. Here we take a deep dive into what these trusts are, how you can make an income from them, and, most importantly, whether is this a viable career choice for you to pursue.
Let’s dig in a bit more:
What Are Real Estate Investment Trusts?
During economic difficulties, the government takes measures aiming to support various markets, including real estate. In the majority of cases, this comes by way of tax breaks that encourage investment. Regarding real estate investment trusts, this is one area in which the government aims to support the real estate markets on the whole. Commercial real estate and large housing projects are often much more difficult to buy and sell than smaller properties, owing to the large costs. A trust, therefore, becomes the ideal investment vehicle that pools together multiple investments to purchase such large properties and developments. It is the tax breaks the government gives, that inspire wider investment.
Who Can Invest Their Money Into REIT
There are no restrictions as to who can invest their money in REIT, although some funds may have a minimum buy-in. There are however some rules and regulations which a REIT must deliver to be operational:
- There must be a board in place to manage the fund
- At least 75% of all investment must go towards real estate
- At least 75% of the fund’s income must come from real estate
- A minimum of 90% of the taxable income should be returned to investors
- The REIT must have at least 100 investors or shareholders
Pros of Investing in REIT
Let’s take a look at some of the advantages that investors have when they get involved in real estate investment trusts.
Buying Power
Smaller investors can get involved with large-scale real estate projects which can promise high returns. Such investors wouldn’t be able to seize such an opportunity if they were to invest alone.
Solid Dividends
Given the mandatory sharing of 90% of total taxable profits, investors can rely on some solid and consistent returns for their money.
Easy Liquidity
The buying and selling of shares in REITs are very simple and it means that investors can free up liquidity as and when they see fit. There aren’t restrictions on investment time frames and that makes such an investment flexible and easy to manage.
Transparent Investment
Another benefit that gives investors confidence is the level of transparency they can find with real estate investment trusts. There are laws from the SEC that must be followed, and transparency on all investments is one of them.
Disadvantages of Investing in a REIT
Whilst this can be a great investment vehicle for some, there are a couple of drawbacks that do put some would-be investors off parting with their money.
Lack of Control
On the one hand, some investors enjoy the freedom that comes with such an investment, handing over the actual investment of funds to the experts. On the other hand, however, many investors don’t like the lack of control that they have over how their money is spent.
Fees Involved
There are management fees to pay when you make this kind of investment that can reduce the overall payout you receive in dividends and share sales.
Potential Risks
When looking to invest in real estate investment trusts due diligence must be completed. As with any investment, some forces can impact the potential growth and profitability of the market.
Does a REIT Make For a Good Career Path?
Although a REIT is often most profitable during an economic downturn, this is still a solid area of investment in a healthy economy. This is why as an investor, putting money into real estate investment trusts is a solid plan, but what about as a career choice?
There is a multitude of paying jobs in real estate investment trust funds, predominantly as brokers, advisors, consultants, and as real estate specialists. Funds rely on frequent investments to continue making money, and that requires a management team working hard to find new funding.
Ultimately for those with a passion for finance and real estate, this can be a lucrative and fulfilling career choice. In most cases, brokers and managers are paid a base salary with attractive commission agreements on top of that, paid out based on fund success.
Conclusion
If you are looking to invest in the long-term then a REIT is a fantastic vehicle for you to do just that, boosting your investment potential and diversifying your portfolio. If you are looking for an exciting and rewarding career in real estate and finance then real estate investment trusts are a fantastic place for you to get started.
