REITs

REITs are Low Barrier and More Liquid

We often talk about real estate investment and property ownership in the physical form such as houses, rental units and multifamily buildings.

And that’s great. It’s our bread and butter.

Recently we have also introduced concepts of equity crowdfunding via podcast guests Manny Fernandez from DreamFunded.com. Amy Kirsch from Realty Shares showing us what it’s like to be an accredited investor or principle in these transactions.

Now, we recognize that some of us are not accredited investors or we may not be financially ready to buy a rental property.

Don’t worry! There’s always other ways to get in the game.

Are you or have you thought about investing in the stock market?

This way allows you to learn the overall dynamics of the real estate industry without having to put too much cash upfront.

Now, you’re saying to yourself, aren’t you guys real estate investors?

Of course we are!

We are talking about Real Estate Investment Trusts, otherwise known as REITs.

REITs are a way to invest in real estate that has a low barrier to entry and is more liquid because it is via the stock market.

Similar to crowdfunding where multiple investors pool their money to help a company launch, a REIT is a publically traded company that owns or finances income-producing real estate.

As an individual investor in a REIT you would get similar income stream (dividends instead of rent payments) and appreciation potential as you would with direct investment.

REIT shareholders gain exposure to income-producing real estate while maintaining liquidity and without having to actually go out and purchase and/or finance property.

We are pleased to bring some thoughts from “Hip Hop Stock Doc” – Dr. Eric Patrick who specializes in stock investing to shed some light on the opportunity that exists in investing in REITs. Enjoy!

John + Richelle

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When it comes to real estate investing, you probably think of the traditional pathways to profit: wholesaling, buy and hold, and rental properties.

To take it a step further, each of those can be either residential or commercial properties.

But what about REITs?

A Real Estate Investment Trust or REITs, is simply an entity that owns or finances real estate for the sole purpose of producing income.

To keep it simple, think of a REIT like a mutual fund, but it incorporates real estate instead of stocks and bonds. That means it’s has an element of diversification, provides investors with a long-term outlook, and pays out regularly scheduled dividends (by law) to its shareholders. Think of the dividends like rental property income. By law, REITs must pay out at least 90% of their taxable income back to shareholders in the form of a dividend.

Now, that you know what a REIT is, let’s get into the 3 different types of REITs.

Equity

Equity REITs typically purchase commercial properties and then rent the spaces out to businesses.

If an Equity REIT were to sell one of its properties, it also can benefit from the capital appreciation that may have occurred during the time of ownership. Here are some metrics when considering buying an Equity REIT.

Examples of Equity REITs:

natinal-retail-properties

Mortgage

Mortgage REITs invest in mortgages just like the name suggests. They buy real estate mortgages and similar investing vehicles, and make money off of the interest that come with owning them. This is similar to how banks make money when you receive a home mortgage loan.

Examples Mortgage REIT:

american-capital-mortgage-investment-corporation

Hybrid

A hybrid is simply a REIT that produces income from both equity and mortgage-based real estate investments. Most hybrid REITs lean more to equity or mortgage-based than being a 50/50 split.

REITs may be either publicly trade on a stock exchange like stocks and exchange-traded funds (ETFs), or they can be non-listed and sold directly to investors via a broker. REITs may also be privately held companies.

Examples of Hybrid:

 

Here’s a great video from Black Market Exchange on REITs using music streaming service Tidal as a point of reference.

For more information on REITs and what qualifies a company to become a REIT, visit REIT.com.

 

The Hip-Hop Stock Doc

What a Time e8ab85_bafd72a5f2564491922d5b00559d9e6eto Be Investing! That’s at least what I tell my viewers. Hi! I’m Dr. Eric Patrick and I’m a pharmacist by trade, but fueled by finance. I love investing like I love Jamaican Punch at Bahama Bucks; the best shaved ice in all the land (don’t debate me on this).

I’m the Founder and Chief Investment Educator of Black Market Exchange, LLC and I love to use hip-hop and urban media to make investing fun and easy to understand. Whether I explain that choosing a broker is like choosing a music streaming service; or elaborate on how a company’s IPO (initial public offering) is like Lil Wayne dropping another Dedication or No Ceilings mixtape, your boy has got your covered so you can understand the stock market and can start investing with confidence

I started this company in late 2014 after questions from many of my family and friends about my investing endeavors. I knew that if I could link a rapper like Future to ways to dominate the market, but still provide professional and valuable content, people would ride the wave to financial success.

I cover everything from basic education like what is a stock or what are the types of bonds. I also blog about trendy investing apps, how to mix travel with investing (financial pleasure), and trends in the market that even the great Warren Buffett would have to take notice. I’ve even written for AcornsBankMobileBlavityMagnify Money and other great platforms.

Money is a tool, and I’m here to show you how to use it to its full capacity.

We show you how to get started generating passive income so you can have more personal liberty and financial freedom. We do this by helping you determine which passive income path is right for you and get you started on your journey with our online community, education, books and tools. We talk about personal finance, building a business and living life on purpose.

2 thoughts on “REITs are Low Barrier and More Liquid

  1. Brian - Rental Mindset says:

    Good to know about the different types and options. It is certainly nice to have a comparison point for zero effort real estate investing.

    However, I am not a big fan of REITs. They leave too much of the gain for someone else, don’t take advantage of some of the unique qualities that make rentals a homerun for a small investor.

    Doing an 80 / 20 analysis, I want to put in 20% of the work and get 80% of the results. REITS might be closer to 1% of the work for 10% of the results. I don’t want to be too hands on at this point either, doing everything myself. Just trying to find the sweet spot for me!

    1. Hi Brian
      Thanks for stopping by!
      Of course, we prefer to invest directly in income-producing real estate and totally agree that investing via REITs offer a smaller fraction of the reward. BUT even by your own analysis, it is only 1% of the work whereas direct investing can be seen as 20%. We recognize that some people are not quite ready for the 20% of effort direct investing takes so REITs may be a good option or stepping stone before getting in the game directly.

      As always, great insight!
      John & Richelle

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