Real estate investment trusts are one of the fastest-growing segments in the financial industry. If you are a financial professional and want to invest in real estate without the hassle of property management, then REITs might be for you. If you’re wondering if working with real estate investment trusts is a good career path, this article will give you the information you need to make an informed decision.
REITs have been around since 1960 and have grown substantially over the last few years. This article will go over what they are, how they work, if they’re suitable for your career path, and answer questions you may have about REIT.
What Are REITs?
REIT stands for Real Estate Investment Trust. These trusts are set up as public companies regulated by the U.S. Securities and Exchange Commission (SEC). They must meet specific criteria to be publicly traded on a stock exchange, but there is no limit to how many can operate in the industry.
REITs buy, sell and own income-producing commercial properties. Many investors in the financial sector invest directly in real estate through companies like REITs.
Most REITs are publicly traded, but many of the companies that own properties for them manage their real estate. This allows investors to invest in multiple properties without having to manage them themselves. Their stocks trade on a stock exchange just like other publicly traded companies.
At its simplest form, a REIT is a company that owns, operates, and finances income-producing real estate. The three most common types of REITs are Equity, Mortgage, and Hybrid.
Equity REITs own properties they can either manage themselves or subcontract out to another firm. These companies derive their income from the rents paid on properties they own or operate and capital gains when sold for profit. They typically pay out 100% of their income (or dividends) to shareholders.
Mortgage REITs or Mortgage Funds purchase and manage mortgages on commercial properties. The net income is derived from the difference in interest rates between the money it pays to borrow and uses to fund its loans. This type of REIT must distribute at least 90% of its income to shareholders.
Hybrid REITs manage properties but outsource financing them through debt or preferred equity. This reduces taxes and allows the company to focus on its core business of making money from rental income. Hybrid REITs can also issue dividends that include a combination of dividends from capital gains and income.
What REITs Own
REITs purchase a commercial property that is rented or leased for long periods. Some examples are office buildings, apartments, medical buildings, warehouses, shopping malls and shopping centers. Most REITs focus on properties that produce income, but some purchase properties to hold them for long-term capital gains.
REITs are more of a hybrid investment than owning real estate directly because you do not own an individual property or get involved with the day-to-day operations. Instead, REITs are traded much like stocks, but they own the properties that produce income.
Who Can Invest In REITs?
REITs allow investors to invest in multiple properties without having to manage them themselves. This makes it easy for individuals with diverse financial portfolios to diversify their holdings by investing in real estate without the added cost of property management.
Top Companies To Invest In REITS
My favorite REIT platforms are:
The ABCs of REITs: How They Work
REITs have a set of specific criteria they must meet before being allowed to operate as a company. First, they must distribute a majority of their income to shareholders and reinvest what’s left into new properties or other investments to grow the company. This happens by buying small properties with low dividends, which are eventually combined with other purchases resulting in more significant income-producing properties.
Typically, this is a good option for retired individuals looking to supplement their Social Security and retirement savings income. In addition, many REITs offer an attractive monthly dividend that can be reinvested into the stock or withdrawn as cash. Which makes them a flexible investment tool that can accommodate different financial plans.
Is Real Estate Investment Trusts A Good Career Path?
Even if you choose a career in another field, REITs offer a good investment option for individuals looking to diversify their portfolios. Many investors will purchase REIT stocks regardless of whether they have an interest in real estate.
In the U.S., several universities and colleges provide degrees in real estate or courses that can lead to real estate careers and job opportunities. This includes programs in commercial property management, accounting for real estate, brokerage services, or even the design of commercial buildings that can lead to sustainable building practices.
The main career pathway with REITs is to obtain a position in the company’s headquarters, where you would be responsible for locating properties and overseeing their day-to-day operations. However, other entry-level jobs can lead to careers in real estate.
Many companies work with independent brokers who represent the company’s properties and conduct screenings on potential tenants. This leads to jobs for property managers, leasing agents, and client representatives.
You could even choose a career option as an appraiser or investment banker if you want to work on a higher level within the organization.
The Benefits of REIT to Investors, the Community, and the Economy
This section will detail why REITs can help everyday investors use their hard-earned money to invest in real estate with the help of crowdfunding.
1. REITs Are Good For Diversification
You can’t go wrong with real estate investment trusts since they work great in a portfolio of stocks, bonds, mutual funds, or any other investments you might have. Unlike buying and selling property which is time-consuming and costly by itself, REITs come with no baggage – meaning there’s nothing to manage. As a result, they give you great returns while being easy to manage.
2. Invest In Real Estate Without Dealing With Tenants
REITs give you diversification and high returns without the hassle of dealing with tenants. You don’t have to worry about late payments, evictions, or non-payment of rent.
3. Professional Management
There are professionals on the job who take care of everything on your behalf. They’re responsible for finding properties, negotiating leases, and taking care of maintenance costs. If you decide to do all these things on your own, it will cost you more than if you invest in REITs where this is already taken care of.
4. Tax Benefits
REITs are taxed at a low rate of 20%. Most importantly, there are no taxes on a corporate level since dividends do payouts. This allows corporations to reinvest the rest of their profits into the company, which will increase share prices over time.
5. Transparency And Regulation
Just like other investments on the stock market, REITs must make their financial information public to investors. Stocks are highly regulated, and REITs are no exception.
6. Real Estate Investment Trusts Offer Liquidity
Since REITs are liquid investments, it’s easy for you to buy or sell them anytime. This is also beneficial since it allows you to take advantage of the volatility in the real estate market. For example, if you feel that prices are going down, you can sell your shares and buy a cheaper house or put the money in a savings account for future use.
7. Diversification Benefits
As mentioned before, REITs provide diversification to your portfolio. Owning a real estate investment trust means you own a substantial part of many different properties, not just a few. Diversification is important because it reduces risk and volatility in your portfolio – this means lower chances of losing money or minimal losses if prices go down.
Career Options With REITs
Here are the top career paths and options involved in the REIT industry.
1. Property Manager
Many REITs work with third-party property managers that act on behalf of the real estate company to find new real estate properties. This can lead to senior management positions overseeing multiple locations, making it one of the top career paths within the real estate industry.
How much you can make:
The median salary for a property manager is about $45,000 – $59,000 per year or between £26,043 and £36,812 in European countries.
2. Development Executives
The chief executive of a REIT has a tremendous impact on the community where they operate, so holding this position requires deep knowledge about the market and available properties. In this role, employees focus on identifying opportunities for new properties and developing budgets for future projects. This path may lead to a senior management position within the real estate industry.
How much you can make:
According to salary.com, the median salary for a senior property development executive is $100,000 per year or £60,118 in European countries.
3. Asset Manager
Asset management involves deciding which properties to purchase and how much debt is needed to finance the deals. Asset managers also oversee property operations and make sure that expenses are in line with revenue projections.
The career path for this job starts at mid-level management; however, the top of this field requires extensive experience within real estate and knowledge about market fluctuations.
How much you can make:
According to payscale.com, mid-level management with five years of experience earns an average of $49,769 per year or £30,028. Top earners at this level make about $92,000 or £55,839.
4. Acquisition Analysts
An Acquisition Analyst is responsible for planning, coordinating, implementing, and identifying potential properties that the company should acquire. This means that they are responsible for identifying potential acquisition targets, negotiating prices, preparing agreements, and other activities related to the purchasing process.
In addition, their role involves understanding market trends, available properties, and what can be accomplished with them (i.e., development plans). This career path starts as an intern and typically leads to a mid-level management position within the real estate field.
How much you can make:
According to payscale.com, an average Acquisition Analyst makes $52,963 or £31,921, while a senior analyst makes $69,571 per year.
Pros & Cons Of Real Estate Investment Trusts
Here we explore the pros and cons of working in and investing with Real Estate Investment Trusts.
Advantages Of REITs
These are the unique advantages of REITs:
1. Real Estate Exposure Without Actually Having to Buy Property
Without the proper expertise, it is challenging for individuals to diversify their portfolios with real estate. This can be very problematic as all your eggs are in one basket, and no matter how educated you are, you always run the risk of overpaying or finding undervalued real estate. With REITs, you can invest in properties that you would never be able to afford on your own.
2. High Yields Without the Hassle of Property Management
Most people who invest in REITs do so for high yields and not necessarily dividends. However, since these companies hire 3rd party management firms, most of their revenue is reinvested back into the company to grow their portfolio. This can be very beneficial because most of your dividends will become yields on top of current yields.
3. You Can Buy Partial Shares In REITs
Most REITs are huge companies with values in the billions. As a result, even if you have $100, that might not be enough to get the total value of a share. Fortunately, most REITs allow you to buy partial shares, which is an excellent investment decision for small investors and beginner investors.
4. Diversification Among Property Types And Regions
Since these companies own multiple properties in different locations, they are very diversified. They will never lose significant value unless there is an economic crisis affecting all properties.
5. Diversification Among Property Types
REITs allow individuals to diversify their portfolios with different types of real estate. For example, you can buy several REITs that focus on commercial, residential, and development properties rather than buying one single property.
As a result, your portfolio becomes much more stable as you have several different types of properties from one single company.
Disadvantages Of REITs
These are the unique disadvantages of investing in and working with REITs.
1. They Are Very Speculative
Since most real estate investment trusts do not hold titles on their properties (the majority use a mortgage), they cannot sell properties if they need cash. As a result, they rely on debt to finance their growth and pay dividends to investors.
This is not necessarily a bad thing if the REIT’s assets are worth more than their debts. However, if some of the company’s properties lose value, the company could be headed for bankruptcy.
2. Because Of High Yield Debt, They Are Very Sensitive To Interest Rate Changes
As you probably know from history class, interest rates have been steadily declining since the 1980s. This may not be good for banks and loans, but it is excellent for REITs as their yields increase with lower rates. Once rates reverse direction and start rising, the opposite is true, decreasing their results.
3. They Operate At A Net Loss
While we said earlier that REITs use debt to finance growth, they do so at a hefty price. Often, REITs operate with significant amounts of debt (which comes with high-interest rates).
As a result, most REITs operate at a net loss because of the amount of debt they have to take out. This means that even though they are making money from their properties and management fees, they still cannot pay dividends because all their revenue goes towards servicing debt.
5. Less Transparency Than Traditional Companies
Since REITs do not own their properties, everything they hold is mortgaged. Because of this, you cannot find any information about what properties these companies possess. Instead, all you see is their gross revenue, operating expenses, and net income.
This lack of transparency can be a major turn-off for individual investors as they cannot see exactly what properties these companies own and their values.
Are Real Estate Investment Trusts A Good Investment?
REITs are good investment opportunities, especially for those not interested in real estate but want to participate in its lucrative returns. Those interested should consider the investment portfolio offered by this type of fund because it may be a threat to other investments.
Is Property Investment A Promising Career?
Of course, property investment is a good career choice. If you are interested in this business, then you should learn first about the business. After that looking for types of jobs related to the real estate industry will be easy. You can also go online and look for various companies that offer vacancies related to the property group.
You can always start with small items and move to the large ones. In addition, you can try to look for an opportunity to work as a real estate analyst or real estate developer. This will be helpful for your future career, and you can learn more from the experts about this industry.
Aside from career opportunities with REITs and other associated organizations within the real estate industry, investing in these companies is also appealing because of the potential returns they offer. In addition, while some REITs are more stable than others, most companies have increased dividends for over 25 years, demonstrating their profitability and stability.
How Real Estate Investment Trusts Make Money
REITs make money in two ways. First, they take in revenues from their properties and payout expenses such as taxes and maintenance. Second, they sell shares to investors who receive a form of dividends based on earnings.
Can You Get Rich Investing In REITs?
Yes, you can get rich by investing in REITs, but you can also lose money. No investment is 100% guaranteed. A highlight of REITs is it is not necessary to invest large amounts of money to buy shares in the company. Instead, you can start with small investments, which you can add until you reach the desired amount you want to invest.
Why Working With Real Estate Investment Trusts Is A Good Career
Real estate investment is a good career pathway because you are your own boss. If there is anything that you want to build, it will be up to you. You can choose the area you are interested in and then show all of your skills to ensure that people notice your improvements as a real estate investor.
Are REITs Riskier Than Stocks?
No, REITs are not riskier than real estate stocks. A well-diversified real estate portfolio can offer investors a balanced alternative investment strategy with appropriate diversification to offset the investment risk associated with property markets and regional economic shifts.
REITs are good investment opportunities, especially for those not interested in real estate but want to participate in its lucrative return on investment. Those interested should consider the portfolio offered by this type of fund because it may be a threat to other investments.
REITs can offer an alternative asset class for those seeking income and capital appreciation and those seeking diversification in their portfolio. In addition, REITs may provide a hedge against inflation as leases usually increase with the cost of living, leading to increasing dividends over time.