REITs – Real Estate with Liquidity
As many people these days are finding out while real estate seems like a wonderful investment, it can also be a painful one if your investment was in a piece of property that you own outright. Many people who had purchased investment properties or homes they were planning to flip for a profit were sent into bankruptcy in the recent housing market crash.
With that said, real estate has long been the solid investment option for those who like to put their money somewhere that it can see results but also remain stable.
So, how does one be able to still be involved in the real estate market and not be caught in that same trap? The answer is by purchasing REITs. A REIT is a real estate investment trust. This means it is much like a mutual fund in that a number of shareholders put money into the fund and that money is used to purchase, finance or manage real estate properties. The profits on the fund then come from mortgage interest, rent or lease moneys that come in.
For the most part a return on REITs averages 6-10%. U.S law dictates that 90% or more of the profits on a REIT go to the shareholders, and that makes them a pretty strong investment option.
The short version of what a REIT is, is a way to be a partial owner in real estate.
But with this said, one of the things that many people fear about real estate, being stuck with a property that will not sell in a down market, is not a problem here. Instead, REITs are totally liquid. If you think things are not going to go well in the future of your REIT, you can sell and get out and then put your money back in when things are looking up again. If you do this right, just this can be a big profit maker for you as you will be pulling your money out when the REIT is high and then putting it back in, and getting more shares, when the market is low.
If you are one of those people that think there's no way to know when the market will do well or fail and that it's all luck, that's not necessarily true. As Smith Barney said, "There's blind luck, dumb luck and then there's get up every morning at 5:30 and sweat the details luck. Few people actually stumble into wealth. It takes persistence, tenacity and a tireless work ethic. In the end, luck has little to do with success."