How much money do you need to invest in REIT?
The Cheapest Option: REITs—$1,000 to $25,000 or more
According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
How do I Invest in a REIT? An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).
Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries. Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales. Pay a minimum of 90% of taxable income in the form of shareholder dividends each year.
No more than: 5 percent of the value of the REIT's total assets may consist of securities of any one issuer, except with respect to a taxable REIT subsidiary.
For investors seeking a steady stream of monthly income, real estate investment trusts (REITs) that pay dividends on a monthly basis emerge as a compelling financial strategy. In this article, we unravel two REITs that pay monthly dividends and have yields up to 8%.
Since they aren't publicly available and don't register with the SEC, it's difficult to pinpoint specific investment minimums. However, investment firm Edward Jones says minimum investments for private REITs can range from $1,000 to $50,000.
REITs can have a lot of value to offer investors. They're more liquid than physical properties and can be a steady source of income. They can appreciate (and depreciate) along with the broader real estate market, and allow you to hedge against stock market volatility. But before investing, do your research.
REITs' average return
Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs. Invest at least 75% of total assets in real estate or cash.
With rate cuts on the horizon, many publicly traded REITs have rebounded, and the industry as a whole seems well-poised for a recovery in the coming year. Ultimately, the decision on whether or not to buy REITs will depend on the specific circ*mstances and risk tolerance of each investor.
Why not to invest in REITs?
Interest Rate Risk
The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.
You can also buy shares in a REIT mutual fund or exchange-traded fund (ETF). To do so, you must open a brokerage account.
Equity REITs – These REITs actually own properties that produce income, such as apartment buildings, commercial buildings and other types of properties, like storage facilities. They own these assets and make money as their tenants pay rent, or when they sell properties at a gain.
Many (but not all) REITs that have investment-grade ratings disclose their debt-to-EBITDA ratio in the “debt analysis” pages of their quarterly supplemental information packages. A lower ratio equates to lower levels of debt and, implicitly, a more secure common dividend.
To qualify as securities, REITs must payout at least 90% of their net earnings to shareholders as dividends. For that, REITs receive special tax treatment; unlike a typical corporation, they pay no corporate taxes on the earnings they payout.
To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
Since real estate investment can carry high debt levels, the sector is subject to interest rate risk. D/E ratios for companies in the real estate sector, including REITs, tend to range from 1.0 to over 8.0:1.
| REIT | Forward dividend yield |
|---|---|
| EPR Properties (EPR) | 7.3% |
| National Storage Affiliates Trust (NSA) | 5.9% |
| Blackstone Mortgage Trust Inc. (BXMT) | 12.1% |
| KKR Real Estate Finance Trust Inc. (KREF) | 13.5% |
There is no set lifetime for the trust in most cases. Investors who buy publicly traded shares in a REIT can usually buy as much or little as they like and dispose of the shares when they want or need to. However, if an investor buys a non-traded or private REIT, the investment should be considered illiquid.
Investors can buy and sell shares of public REITs at any time during trading hours. With private REITs, on the other hand, investors may have to wait for a redemption event, which can occur quarterly or annually, before they can cash out their investment. Additionally, private REITs may charge redemption fees.
How long will it take for a $1000 investment to double in size when invested at the rate of 8% per year?
For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Any increase in the short-term interest rate eats into the profit—so if it doubled in our example above, there'd be no profit left. And if it goes up even higher, the REIT loses money. All of that makes mortgage REITs extremely volatile, and their dividends are also extremely unpredictable.
Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.
Publicly traded real estate investment trusts (REITs)
That makes them a great source of income. REITs are also a low-cost investment since shares of most REITs trade for less than $100 each. They're passive investments because you don't need to do any work other than research and follow the investment.
| # | Name | C. |
|---|---|---|
| 1 | Prologis 1PLD | 🇺🇸 |
| 2 | American Tower 2AMT | 🇺🇸 |
| 3 | Equinix 3EQIX | 🇺🇸 |
| 4 | Simon Property Group 4SPG | 🇺🇸 |
