Five Reasons To Love REITs

Written by Peter Churchouse, Stansberry Churchouse

In my opinion, real estate investment trusts (REITs) are one of the most underappreciated asset classes out there.

They were created back in 1960 in response to demand for legislation that would allow regular everyday investors the ability to invest in large portfolios of the income-generating real estate.

President Eisenhower signed a law providing the legal framework for a real estate structure for investors akin to the mutual fund structure for investing in stocks.

REITs have since spread around the world as an increasing number of jurisdictions create their own REIT legislation. In our part of the world, Australia has a large REIT market, with REITs available there since the 1970s.

Other relatively developed REIT markets include Japan (since 2001), Singapore (2002) and Hong Kong (2005).

paulbr75 / Pixabay

What is a REIT?

A REIT is a company that owns a portfolio of the income-generating real estate. The properties owned by REITs vary hugely – they can be commercial (i.e. offices), retail, residential or industrial, and can even include hotels, hospitals, and forestry.

REITs don’t even necessarily need to own real estate. Mortgage REITs (MREITs) own bundles of commercial and real estate mortgages, for example. In the case of MREITs, an investor is buying a portfolio of the mortgage debt or mortgage securities.

For the purposes of this article, however, I’m going to focus on REITs that own bricks and mortar real estate – also known as equity REITs.

There are dozens of reasons for you to own REITs… here are five to begin with:

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1. Income

By law, REITs have to pay out nearly all of their taxable income to shareholders in the form of dividends. Whilst the percentage of income that must be paid out varies depending on the specific REIT country jurisdiction, it’s usually at least 90 percent.