Investing in a variety of asset classes is the key to true portfolio diversification. Today, real estate – more specifically, Real Estate Investment Trusts (REITs) – is a class to consider. Bob Wamhoff, President of Wamhoff Financial Planning & Accounting Services, breaks down this market.
- A REIT is a fund that is typically focused on investing in a specific type of real estate, such as health care or multi-family properties, which is open to investors for a limited period of time.
- REITs are not tied to the market. This doesn’t necessarily mean that REITs are not resistant to market fluctuation.
Different Types of REITs:
- Publically traded: registered with the SEC and traded on an exchange. According to Morningstar research, publically traded commercial REITs typically outperform non-traded REITs over time.
- Private non-traded REITs: non-liquid investments that cannot be sold on the open market
- Global REITs: allow for international investment, typically in developing nations. It is estimated that just under half of all REITs are outside the US.
- Multi-Family Housing REITs: demand continues for apartments, as vacancies have recently dropped to just 4% and rents have risen 3% from a year ago.
Why Real Estate? Why Now?
- REITs can help hedge against inflation. While it’s not guaranteed, real estate values typically rise with inflation.
- Interest rates are still low, so buying power remains strong. Once they rise, it will be harder for REITs to borrow money and buy property.
- The bond market continues to produce low yields. Therefore, many investors are opting for REITS rather than experience the low yields of the bond market.
- As with any investment, do your homework or seek the advice of a professional who has thoroughly evaluated any REIT you may be considering.