The Benefits of Real Estate Investment Trusts

For those who are looking for the best way to break into the real estate investment market, the real estate investment trusts (REITs) offer lucrative opportunities. These are companies focused on acquisition and management of income-generating commercial real estate properties including apartments, hotels, storage houses, resorts, shopping centers and offices.

To appreciate its magnitude, REITs has contributed significantly to the boom of our economy and diversifying investment portfolios of millions of active investors. In 2001, US investment performance benchmark Standard & Poor's 500 Stock Index highlighted the massive influence of commercial real estate investing and REITs in the public capital markets.

Aside from its strong market performance, there are several practical reasons why you must invest in real estate investment trusts. These are:

Simple Business Model
In other markets, there are multiple factors you must comprehend before you can intelligently monitor the performance of you stocks. In the case of real estate investments, you can easily predict your income by looking at the occupancy rates and rental fees. Increased occupancy rates or raising rental fees automatically results to net positive return. To make real estate investing more predictable, tenants sign long-term leasing agreements with REITs.

Although the business model is relatively simple, REITs growth drivers are derived various sources like new business opportunities, property acquisitions, higher revenues, development programs and lower costs.

As mentioned above, apparent measures are higher occupancy rates and increasing rental fees. Still, REITs with underutilized properties still have the chance to increase its earnings by improving its building services, upgrading its facilities, and exert aggressive initiatives to capture the new kinds of tenants.

In 2001, US government enacted the REIT Modernization Act (RMA) to help Real estate investment trust increase their earnings. Under this new law, REITs can set up subsidiaries to offer specialized services that are normally viewed as not usual and customary landlord services. While this law is still not perfect, it widens the horizon or playing field of REITs to increase their earnings potential and improve their services.

Easy Buy
Most REITs are trading on major stock exchanges like NASDAQ, New York Stock Exchange, and American Stock Exchange. It means real estate investors, experienced or not, can easily buy shares the way they buy ordinary stocks. Since it is publicly trading, REITs shares are also convertible to cash.

REITs are also mandated to disclose all financial performances like annual and quarter reports to the business community in accordance with the Security and Exchange Commission (SEC).

Stable Investment
Based on historical performance of REITs stocks, investments of shareholders are protected sudden dip in the market. For the last 20 years, returns on REITs come from moderate and long-term growth in share prices. These registered growths either matched or exceeded the growth of Consumer Price Index (CPI).

Typical REITs offer moderate to long-term capital growth as well as high dividends. Aside from stable dividend income and high dividend yields, real estate investors connected with REITs can reduce their risks through portfolio diversification.

I hope you appreciate all the advantages of joining real estate investment trusts with this simple article and encourage you to take the right steps towards real estate investing.