There are plenty of assets you can invest in that can help you generate an income and real estate is widely considered one of the best.
Despite that, buying real estate isn't a realistic option for everyone. The main reason is the price of properties on the market. Many people simply don't have enough money to invest, so they don't think they can get on the property ladder.
Real estate investment trusts (REITs), however, present a much more viable option for those who want to get into real estate but don't have much to invest. Keep reading to find out more about them so you can decide if they're a suitable investment for you.
What Are Real Estate Investment Trusts (REITs)?
REITs are companies that own and manage properties on behalf of real estate investors. They provide individuals with a way to make real estate investments without the need for significant capital. There are two main types of real estate investment trusts: equity REITs and mortgage REITs.
Equity REITs are the most common, and they involve trusts owning and operating properties that generate passive income. This is usually through rental payments and capital appreciation. They cover various property types such as residential, commercial, industrial, and specialized sectors.
Mortgage REITs invest in mortgages or mortgage-backed securities. They generate income from the interest on mortgage loans. Mortgage REITs tend to cover either residential or commercial properties, but sometimes a combination of both (hybrid).
Benefits of REITs
The main benefit of a REIT is that it's one of the cheapest options when it comes to investing in real estate. Some REITs will allow you to invest with just a couple of thousands of dollars, so it's an easier solution for those who can't afford an entire property.
Another benefit is that you don't have to worry about managing any REITs you invest in. A portion of the income that a property generates goes to the company managing it, so they take care of all the day-to-day work involved. Once you've made your investment, you can leave them to it.
Are There Drawbacks?
One key drawback is that your profits won't be as great as they would be if you invest in property alone. A percentage of the income goes to the property management company to cover their fees.
With that in mind, at least 90% of the income must be paid out to investors, so you won't have to worry about losing too much money. Taking into account the fact that investors don't need to worry about operating properties at all, many people consider this well worth it.
Are REITs Right for You?
This is something you can only really answer for yourself. You need to think about your investment goals alongside your budget to figure out the best path for you.
PMI Infinito is a leading property management company based in Houston, TX. We can give you expert advice and guidance for real estate investment trusts (REITs) or any other property investments you're considering.
Contact us today to find out more about how we can help.