From a historical point of view, disruptions in the real estate market have brought about noteworthy wealth-building opportunities. Investors who are savvy enough to be able to identify them can attain financial success. The COVID-19 pandemic has completely changed the way many people look at the real estate market. Change isn’t necessarily bad, just to be clear. It’s just inevitable. Change brings new choices for investing in real estate, which come with unique advantages and challenges. An investment that might seem intimidating at first is the real estate investment trust. This investment vehicle is fairly uncorrelated with the broader market, meaning that it offers good protection against eventual market downturns.
At present, investors have access to a greater selection of real estate investment funds, which enables efficient capital allocation and portfolio diversification. Real estate carries some risk, like all investments, but you’re able to completely avoid the unwanted consequences. REITs, in particular, are better suited for investors looking forward to enjoying a stable cash flow and positive dividend yields. These dividends come with certain tax consequences, but if you end up paying more taxes, you can sell the REIT and make capital gains. If you want to identify your portfolio by using real estate investments, please continue reading to find out more.
Understanding the basics of REITs
REIT, which stands for real estate investment trust, is basically a mutual fund that invests directly in real estate. The investments are realized via properties or mortgages and anyone can purchase shares in a publicly-traded REIT. If you would like to invest in real estate but can’t afford to acquire property, it’s a suitable investment option. Public REITs are listed on stock exchanges and the holding is liquid, which translates into the fact that you can buy and sell the shares without much difficulty. Private REITs, on the flip side, sell securities to institutional investors and accredited investors. You’ll have a hard time accessing the money you’ve invested.
Attention needs to be paid to the fact that investing in REITs is different from traditional homeownership. Direct real estate investing provides more tax benefits, not to mention that you have a higher degree of control over the investment. You simply own a small slice of various assets such as condominiums, shopping centers, hospitals, parking garages, factories, and so on. The good news is there’s less financial risk involved in owning shares in a real estate investment trust because the portfolio is a mixture of different real estate properties. Diversification reduces the risk of investing, but the market risk is usually unavoidable.
What are REITs biggest advantages?
REITs typically operate in the office/commercial sector, but they can be replicated for rentals, vacation properties, and ship cabins. Investing in a real estate investment trust offers the following benefits:
- passive income
- portfolio diversification
- capital preservation
- inflation hedge
- simplified tax reporting
- professional management
Needless to say, REIT investing isn’t suitable for everyone, in spite of the many advantages it offers. You should choose REIT investment as a long-term investment to strike a balance between volatility and time. Putting your money in the long-term will provide capital gains, so you’ll have a considerable sum of money when you retire. When planning an investment strategy, it’s paramount to choose something that reflects your objectives. A long-term investment allows you to grow your portfolio and meet goals several years in the future.
Key things to take into account when investing in REITsInternational REITs build exposure to real estate markets around the world
It’s highly recommended to take a look at how you can invest in other countries to make more money. Colombia, for instance, is growing by the day because businesses manifest interest in this area rather than Mexico and Brazil. This growing interest can be explained by the expanding middle class, strong economic environment, and greater appetite for exposure to the region. There’s interesting potential in industrial park developments in free trade zones.
Owing to the growth of foreign investment, the real estate market has been implementing the American model, which produces great results. Gaming REITs have outperformed traditional REITs. This doesn’t really come as a surprise given that spending on gambling, particularly on juegos de tragamonedas, has doubled in the past couple of years, with more and more people seeking to visit traditional facilities. Most casinos offer digital versions of their products, so people are able to play slots gratis online en Colombia for guaranteed fun.
Casino REITs are likely to see protection from growth in iGaming. Tenants are investing in online gaming platforms, which offer activities likes blackjack, slots, and poker. The revenue from the online segment improves operators’ rent coverage ratios. The point is that international REITs provide access to new and exciting markets. Numerous countries and regions around the world have adopted the US-based approach to real estate investing. The benefits of portfolio diversification depend exclusively on the asset allocation strategies.
REITs shouldn’t make up more than 25% of your investment portfolio
While there’s no clear-cut rule about how much of a portfolio should be invested in real estate investment trusts, it’s not a good idea to allocate more than 25% of your funds to REITs. 5% or 10% is a good place to start. You have less volatility and your returns are actually better. Many agree with the fact that 20% is optimal. Well, the decision is up to you. Yet again, there’s no official recommendation.
Take into account valuation dynamics
When searching for the perfect investment vehicle, you’ll most likely come across different valuations based on geographic locations. While a couple of years ago, there was a great opportunity in REITs in Japan, that’s not the case anymore. As mentioned earlier, it makes sense to invest in REITs in Colombia. With casinos being open again for business, players are flocking to land-based venues to play ruleta. The bulk of revenue is derived from those striving to win at a game of ruleta (or other game of chance). Anyway, investors have driven up valuations considerably. Be cautious because even the most attractive yields contain risks.