REITs Vs. Stocks

Save

Real estate investment trusts (REITs) and stocks provide a way for investors to build long-term wealth. They have some similarities, but knowing their differences helps investors decide which is right for them. Despite their differences, having both REITs and stocks in an investment portfolio can benefit an investor.

About REITs

  • REITs are companies that invest in real estate, real estate financial instruments (such as mortgages) or a combination of both. Like other public companies, public REITs must file quarterly and annual financial reports with the Securities and Exchange Commission. Many REITs trade on major exchanges alongside stocks. Unlike other companies, REITs must distribute at least 90 percent of their taxable income to shareholders, and they do not pay corporate income tax on the distributed dividends.

About Stocks

  • A share of stock represents partial ownership in a company and a claim on all its assets and future earnings. Part of the claim on earnings often is paid out as dividends, or a periodic distribution of earnings. But, unlike REITs, companies aren't required to pay dividends. Stocks also provide the right to vote on management and other issues.

REIT Advantages

  • There are several advantages to investing in REITs. Because of their payout requirements, REITs typically provide a consistent stream of dividends. Investing in REITs also provides diversification through exposure to the real estate asset class, which can benefit an investment portfolio. Because many REITs are publicly traded, they offer diversification with the benefit of liquidity, or the ability to sell quickly, that isn't typically found in traditional real estate investments.

Stock Advantages

  • Stocks have some advantages as well. Because most non-REIT companies have no minimum income distribution requirements, they have more liberty to reinvest their income to grow their business. Stocks also represent ownership in a wide variety of companies and industries, whereas REITs are restricted to real estate. While real estate is prone to cyclical downturns, investors have more flexibility to invest in stocks in growing industries, when other industries are declining.

References

Promoted By Zergnet

Comments

Resources

You May Also Like

  • Value Stock vs. Growth Stock Long-Term Return

    Value and growth stocks are two categories of stocks that reflect the financial metrics of the underlying companies. Investors consider value stocks...

  • How to Invest in REITS

    If you want to buy real estate for your portfolio without worrying about buying, selling and managing individual properties, you should review...

  • Are REITs Safe Investments?

    Several reasons make Real Estate Investment Trusts a safe asset class. Investors can buy and sell shares in REITs as they would...

  • The Best High-Yield Short-Term Investments

    With savings accounts and money markets hardly paying any interest, you may want to look for alternative forms of high-yielding investments to...

  • Non-Traded REIT Vs. REIT

    Real estate is often considered a relatively reliable investment option. Real estate investment trusts (REITs) can provide an investor with income and...

Related Searches

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!