How to Invest in a Real Estate Investment Trust
A Real Estate Market Trust (REIT) can be a lucrative investment for the novice if you take some precautions. A REIT (pronounced "rit") is a real estate investment company’s offerings of “shares” of their investment properties. The profit is made from rents or mortgages on the properties which are generally commercial units. Because the investment company must return 95 percent of profits to the shareholders in order to take advantage of tax breaks, the potential for considerable profit is good. However, investing in a REIT can be risky. As with any investment, profits are not guaranteed, and in extreme cases, you can lose your outlay. In an uncertain real estate market, it is especially important to research both the properties and the investment company before putting your money into the project.
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Instructions
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Ask questions about the real estate company offering the REIT. Find out how long it has been in business and what its track record in REITs is. Make sure all of their data is current.
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Find out as much as you can about the property. Research the neighborhood and comparable investments in the area.
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Be prepared for a long-term investment to see the best return. Although one of the greatest advantages of investing in REITs is rapid liquidity, that is not the case during a slow real estate market. Generally, experts recommend keeping your investment in the REIT until the market turns.
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Look for good deals that may turn around. As with any investment, the idea is to buy low and sell high. A slow real estate market is a good time to find bargains. However, don’t be blinded by the potential of a high profit. More potential profit often means higher potential risk.
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Stay informed. While initial research of the REIT may help you to avoid a costly mistake, stay on top of the changing market, and be prepared to make quick decisions.
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Tips & Warnings
Read blogs and join discussion groups to find out what other investors think about REITs.
As with any investment, don’t invest any more than you can afford to lose. No investment, beyond FDIC insured savings accounts, will guarantee your money.
