Playbook #018: REITs (Real Estate Investment Trust)
🖼️ The Big Picture
If you like the idea of a relatively safe, inflation-hedged, fully liquid, high dividend-paying stock, then REITs may be for you.
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a wide range of sectors. Holdings inside REITs include office space, apartment buildings, warehouses, industrial complexes, retail pads, medical facilities, hotels, and even things like cell towers and data centers.
Congress created REITs in 1960 to allow small investors like us a chance to earn income from large, income-producing commercial real estate without having to go out and purchase these expensive properties ourselves.
REITs have a fascinating history that has inspired similar investment structures in more than 40 other countries.
Most REITs trade on public stock exchanges, making them easy to buy and sell like any other stock, and many can be purchased for under $10 per share.
Unlike other stocks, a REIT must invest at least 75% of its assets in real estate, earn at least 75% of its gross income from rents, interest, or sales of real estate, and here’s the kicker:
REITs are required by law to pay at least 90% of their taxable income out to shareholders each year.
Many have annual returns that beat the market every month over the long term. So it's not uncommon to see dividend payouts that can double those of common stocks.
As an investor, REITs can be quite attractive: they get you some of the benefits of real estate (including big tax advantages and being an inflation hedge) without the need to tie up capital for long periods of time or the hassle of buying and managing a property.