Real Estate Investment Trusts (REITs) are a type of mutual fund in which the only investment is real estate. A REIT can buy and sell property, but also develop and manage it. Essentially, they divide the ownership of properties into shares, and investors can then purchase these shares. According to Al Hartman, REITs have become increasingly popular, not just in Houston or even the country as a whole, but all over the world.
Al Hartman on How REITs Work
Typically, REITs set up agreements with property management companies. They then get to work on identifying properties to invest in or to develop. The public can then purchase shares in the REIT, which essentially means that they own a piece of property, although they do not know which property it is. They simply have to have faith that the REIT is making the right decision.
Finding out whether or not a REIT’s proposition is one worth considering is down to research. If a REIT has been around for a long time, they should have reports on how much they have grown over the years, and what types of returns they have offered. Naturally, there are never any guarantees in the world of investment, but it is up to you to find out just how much risk there is.
Types of REITs
There are three main types of REITs that you can invest in:
- The equity REIT, which is a type in which actual property is bought, sold, managed, and developed.
- The mortgage REIT, which is a type in which mortgages are provided to those wanting to invest in physical real estate.
- The hybrid REIT, which invests both in physical real estate and in mortgages.
What you must remember, however, is that even if you choose an equity REIT, you will never really own the property they invest in. There is no need, therefore, to peruse over a photo of a piece of property that you are interested in, as you don’t get to make decisions in that.
Statistics on Global REITs
One of the main reasons why Al Hartman believes a REIT offers such a solid investment, is because they have been performing well on a global level since the Great Recession. Specifically, he has found that:
- There has been a huge pickup in demand for residential properties again, but also for commercial properties.
- Rental yields in certain countries are higher than in others, which means people have a greater degree of choice through REITs now.
- Development yields are at an all-time high, something that is true the world over.
- Income is growing and rural areas are becoming more urbanized. This means that demand for real estate, whether existing or to be developed, will continue to rise.
According to Al Hartman, deciding to invest in real estate is always a good idea. However, as it is also unaffordable for most people, he feels the REIT is the best alternative.