Invest in REITs for long-term benefits

There won’t be any human on this planet who doesn’t want a secure and stable source of income in their life, particularly after retirement. That’s why people invest in mutual funds. The return may not be high, but there is an assurance. Same goes with REITs in real estate investment. REITs provide fixed returns (subject to market fluctuations) which increases along with the age of the investment. Though not every REIT functions in this way. There are different kinds of REITs available in the market, some of which trade on the National Stock Exchange.

Variation in REITs –

A Real Estate Investment Trust or REIT is a legal trust that owns, and in most cases, operates real estate properties. This kind of investment requires long term commitment and may not suit investors who like short-term benefits. The majority of REITs lease spaces to tenants and receive rents on those properties. On the other hand, some REITs fund loans to real estate developers.

  • Equity REITs – Equity REITs give properties on lease and receive rents on those properties. That’s their main source of income. The majority of REITs are Equity REITs. Equity REITs generally have large institutional-grade properties in their portfolio.
  • Mortgage REITs (mREITs) – This kind of REITs invest in mortgages and mortgage-backed securities. Mortgage REITs lend money to real estate developers and earn interests on the loan. The profit of a mortgage REIT is calculated by taking out the difference between the interest earned on the mortgages and the cost of financing the loan.
  • Hybrid REITs – Hybrid REITs are a combination of Equity and Mortgage REITs. These kinds of REITs lease spaces to tenants as well as lend money to real estate developers.
  • Publicly-Traded REITs – These REITs are listed with the Securities and Exchange Commission (SEC) and trade on the National Stock Exchange. The shares of these REITs can be purchased the way you buy the stocks of any other company.
  • Publicly Non-Traded REITs – These REITs are also listed with the Securities and Exchange Commission, but they don’t trade on the National Stock Exchange.
  • Private REITs – These kind of REITs are only available for selected investors and held privately. Neither they are listed with the Securities and Exchange Commission nor do they trade on the National Stock Exchange. 

Benefits of REIT Investment –

REIT investment is generally accompanied with many benefits, some of which are –

  • Regular flow of income – As a REIT investor, you can expect a regular flow of income in the form of dividends. As per the rules, a REIT must distribute 90% of its income among its shareholders, which shows how beneficial a REIT investment could be.
  • Liquidity – The ability of a REIT to buy and sell like other stocks or mutual funds is what makes REIT investment more beneficial. The majority of REITs trade on the National Stock Exchange, where they can be easily sold or purchased.
  • Transparency – As a REIT investor, you will get audited financial reports for the period of your investment. REITs provide corporate governance aligned with shareholders interests.
  • Diversification – With little-to-no correlation with other stocks or bonds, REIT investment is free from how other stocks behave on the stock exchange. When you invest in REITs, you invest in real, tangible assets that can diversify your investment portfolio.
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Perch Financial LLC and Arkadios Capital LLC do not provide legal or tax advice. Securities offered through Arkadios Capital LLC Member FINRA/SIPC and MSRB registered. Arkadios Capital LLC is unaffiliated with any entity herein.

1031 Risk Disclosure:

  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

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Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

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