The Benefits of REITs
REITs have a wide range of benefits for investors, including:
- REITs offer an opportunity for investors to add a new asset class to their portfolios. They traditionally have a very low correlation to conventional assets like stocks and bonds and typically have gone up during stock downturns.
- REITs have historically been a hedge against inflation.
- REITs pay an income stream and are required by law to distribute at least 90% of their annual taxable income to shareholders.
- They’re on track to exceed the $34.7 billion they raised last year; year-to-date, they’ve raised $27 billion.
- REITs have also reduced their leverage in the last year by one-third.
- The asset class generates dividend income and long-term capital appreciation.
Investing in REIT ETFs
Unlike investing in physical real estate, REIT ETFs are traded on a stock exchange, which provide potential investors exposure to the diversification of the real estate sector without having to hold a bulky long-term investment. Investors like investing in REITs because of their liquid nature as compared to physical properties.
The largest risk with REITs will be that someone will be there to continue to pay the rents. If the commercial side of the market begins to weaken, then that should over time begin to weaken the yields further, to the point that shareholders no longer find value and sell their shares. Additionally, GDP, job growth, corporate profits and consumer confidence are also major factors to consider when gauging REIT ETFs.
As a pro-level subscriber, you have a variety of tools you can use to research REIT ETFs and find the right fund for your clients. You can find all REIT ETFs in the ETF Analyzer, then research them in the ETF Resume.
If you want to monitor one before you buy, add it to your ETF Watchlist. And if you’re ready to build a portfolio, get started with that here!