Are REITs a Good Investment in 2022?

In the past, REITs have generated competitive total returns based on high, consistent dividend income and long-term capital appreciation. In addition, their relatively low correlation with other assets makes them an effective portfolio diversifier that can help decrease overall portfolio risk and boost returns. These are the features of a real estate investment.

Should You Invest In REITs?

REITs are investments with a total return. They typically offer substantial payouts and moderate long-term financial appreciation potential. REIT stock returns tend to be comparable to those of value stocks and greater than those of lower risk bonds over the long term.

Investing in REIT is a significant investment for both retirement savings and retirees who demand a steady stream of income to cover their living expenditures due to their high total returns. Annually, REITs are obligated to return at least 90 percent of their taxable income to their shareholders, resulting in significant dividends. Their dividends are supported by a consistent stream of contractual rents paid by their tenants. The relatively low correlation between the returns of listed REIT stock and the returns of other equities and fixed-income investments makes REITs an excellent portfolio diversifier. REIT returns tend to "zig" when other investments "zag," reducing portfolio volatility and enhancing returns for a given level of risk.

Historically, REITs give investors:

  • Aggressive Long-Term Performance: Similar to other stocks, REITs have generated comparable long-term total returns.
  • Outstanding, Stable Dividend Yields: The dividend yields of REITs have typically generated a constant income stream regardless of market fluctuations.
  • Liquidity: REITs with a public listing are actively traded on the major stock exchanges.
  • Transparency: Independent directors, analysts, and auditors, along with business and financial media, track the performance and prognosis of listed REITs. This monitoring provides investors with a measure of safety and multiple financial indicators of a REIT's health.
  • Portfolio Diversification: REITs provide exposure to the real estate market with typically low correlations to other stocks and bonds.

Do Financial Advisors Recommend REITs?

According to a recent study by Chatham Partners, 83% of financial advisors recommend REITs to their clients. The majority of advisors concur on the fundamentals that favor the inclusion of REITs in a diversified portfolio over the long term.

Can You Diversify Your Portfolio With REITs?

Over the past several decades, asset correlation has increased. This has presented advisors with the issue of identifying investments to diversify their clients' portfolios. REITs give investors access to significant diversification opportunities. According to a study conducted by Chatham Partners, the vast majority of advisors are now investing in REIT funds for their clients, with "portfolio diversification" being the most often mentioned reason.

Who Usually Does REITs Investments?

Approximately 145 million American households are currently involved in REITs either directly or indirectly via REIT mutual funds or exchange-traded funds (ETFs).

  • REITs are owned by institutional investors such as endowments, pension funds, foundations, insurance companies, and bank trust departments
  • Millions of participants in the Thrift Savings Plan (TSP) have access to REITs among their stock options
  • Nearly 100% of target date funds, which are prominent in 401k plans, allocate to REITs

Is Homeownership An Alternative To Investing In A REIT?

A house is a consumption, not an investment, especially when funded with a substantial mortgage. It generates no current income but requires regular mortgage interest, property taxes, insurance, and maintenance payments. REITs, on the other hand, are investments in commercial real estate that provide recurring income from rentals.

Moreover, a REIT is a liquid investment that is diversified across a number of real estate properties in various geographic regions. Comparatively, a house is a somewhat illiquid asset with highly concentrated investment risk, as opposed to diversified investment risk. REITs are properties that work for you.

Financial Benefits Of REITs

REITs provide investors both the benefits of investing in commercial real estate and the benefits of investing in a publicly traded stock. The investing qualities of income-producing real estate have traditionally afforded REIT investors historically competitive long-term rates of return that supplement the returns on other stocks and bonds.

Additionally, REITs are obligated to distribute at least 90% of their annual taxable income as dividends to shareholders. The industry's dividend yields have traditionally delivered a continuous stream of income in a variety of market circumstances, with average yields significantly greater than those of other equity sectors.

What's more, REITs offer several uncommon benefits among companies in other sectors. These benefits are one reason why REITs have gained popularity among investors over the past several decades.

The dependable income of REITs is obtained from rentals paid to owners of commercial properties whose tenants frequently sign long-term leases or from interest payments from financing those properties.

The majority of REITs follow a clear and easily understood business model: by leasing space and collecting rent on its real estate; the company produces cash, which is subsequently distributed as dividends to shareholders. REITs, like other public companies, must declare earnings per share based on net income as defined by generally accepted accounting principles (GAAP) when reporting financial results.

In conclusion, REITs have a proven track record of providing a high level of current income together with long-term share price appreciation, inflation protection, and judicious diversification for investors of all ages and investment styles.
Start your investment journey today with the help of trusted professionals at Saint Investments. Learn how to start investing in REITs for income by scheduling a free consultation today!

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