January 20, 2022

What are REITs and Why are They a Good Investment?

An aerial view of Armada Hoffler’s Town Center of Virginia Beach

Armada Hoffler Properties is a real estate investment trust (REIT) that specializes in building, developing, acquiring, and managing the best real estate properties across the Mid-Atlantic and Southeastern regions of the United States. 

It may be obvious that our company purchases and manages real estate properties, but it may not be so obvious what a real estate investment trust actually is. We are here to help you understand what a REIT is and why they are a good investment.

What is a REIT and how do they work?

A REIT is a company or organization that makes investments on income-producing real estate. They are essential when building any equity or fixed-income portfolio. REITs typically pool funds from several investors, making it possible for individual investors to earn capital from real estate without actually having to purchase or manage the properties themselves. 

REITs generally specialize in a specific real estate sector, but some of them, including Armada Hoffler, have several different types of properties in their portfolio. Armada Hoffler acquires and manages a wide range of properties including office, retail, commercial, and multi-family. 

Real estate investment trusts are unique from other forms of investment in the way that they are required by law to derive at least 75% of their gross income from real estate-related sources and invest at least 75% of their assets into real estate. REITs are also required to allocate at least 90% of their income directly to their investors. This is exactly why Armada Hoffler works diligently to build communicative relationships with our shareholders.

How does a REIT earn money?

For a company like Armada Hoffler that is a part of the traditional public market, investors are given access to publicly traded REITs and they are able to buy shares. This process is done by initial public offering, or IPO. Through this process, REITS are able to raise the money that allows them to buy, manage, and develop real estate. 

Why is a REIT a good investment?

REITs are good investments for shareholders and investors who are looking to diversify their portfolio outside of the stock market. The diversity they provide helps to reduce correlation to stock and bond markets which lowers an investor’s portfolio risk without impacting returns in a negative way.

Historically, they have delivered competitive returns based on a combination of dividend income and long-term capital appreciation. Because REITS are able to provide such a strong dividend, they are a great option for retirees and those saving up for retirement who need a continuing flow of income. 

How do I invest in REITs?

These companies give anyone and everyone the opportunity to invest in real estate the same way that they can invest in other industries. Individuals can buy shares in REITs just like they would purchase any other public stock. Investors can also purchase shares through an exchange-traded fund or REIT mutual fund.

For more information about Armada Hoffler’s investment platform, visit https://armadahoffler.com/investments/

To keep up with us, follow our Instagram: @armadahoffler.

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