If you are considering investing in commercial real estate, you have likely realized that there are a variety of different ways to get involved in this diverse and profitable industry. However, one of the most common forms of investment is a real estate investment trust, or REIT. If you have asked a financial advisor or other expert “should I invest in property?” they may have advised you to use this tactic. But why invest in REITs? What makes it better than other forms of real estate investment? Read on to find out.
REITs Often Have High Yields
One of the best answers to the question “why invest in REITs?” is the high dividends: in 2012, the average dividend yield for REITs was 4.3%. But while this was greater than the yield of the Standard and Poor’s 500, it was low for their long-term average, which typically average 7-8%. Moreover, REIT dividends are often secured by stable rents from long-term leases and conservative balancing measures.
They Involve Simple Tax Treatments
REIT investors often find that their taxes are comparatively simple. Every year, the REIT’s real estate partners will send their shareholders 1099-DIV forms, which explain the dividend distribution. Because REITs do not pay taxes at the corporate level, the shareholders are taxed as individuals for the ordinary income component of the dividend. Excess returns of capital or net capital are not taxed, and instead used to reduce the investor’s cost basis. If the shares are sold, this difference is then taxed as a capital gain.
They Have a High Chance of Liquidity
Because REIT shares are traded on the stock exchange, they can be bought and sold quite easily. This often makes it preferable to directly buying and selling property, which requires more money, time and effort.
They Are Good for Portfolio Diversity
Because REITs have little correlation with the stock market index, adding this type of investment to a diverse portfolio can help reduce risk while simultaneously increasing returns.
With so many practical benefits associated with REITs, it’s no surprise that this type of investment is considered one of the best ways to invest in property and diversify your portfolio. To learn how to invest in a REIT, contact a real estate investment company in your area today. Ger more information on this topic here.