September 13, 2023
Debunking Common Misconceptions About REITs
For many years, REITs often receive negative attention when considering investment strategy. There are misconceptions that lead investors to miss out on the stability and passive income REITs offer from a long-term perspective. Let’s go over some of the common misconceptions you may have heard about the REIT industry.
REITs and stocks have the same risks.
Although REITs are traded on stock exchanges and they share some characteristics, they are fundamentally different. REITs are required to distribute at least 90% of taxable income to shareholders through dividends, which provides a steady income stream. REITs also offer diversification benefits that traditional stocks do not offer, being that the underlying assets in their investment are real estate properties.
REITs underperform when interest rates rise.
While REITs can be sensitive to interest rate fluctuation, the correlation between the two is complex and depends on various factors, including the overall state of the economy, inflation, and the underlying property sector. It is highly probable the REIT you are investing in has prepared by factoring potential rate changes into their business strategies. After all, every investment is subject to the ebb and flow of the economy.
REITs are a fast way to make money for retirement.
Like any major investment, REITs require a long-term approach. They produce high-yielding dividends and capital appreciation, but they are not a get-rich-quick scheme. REITs, as an investment portfolio strategy, require thorough research and understanding before making a commitment for your future.
Investing in direct real estate is more beneficial than REITs.
While direct investment offers control over specific properties, it demands substantial capital, consistent maintenance, and lacks diversification. By contrast, REITs provide diversification, professional management, and liquidity, mitigating the risks of individual property fluctuations.
Every investment strategy carries its own risks and rewards. That is why it’s so important to do your own research, consider your personal financial goals, and talk to professionals before making any investment decisions, including investing in REITs.