An easy path to entry in the real estate industry is through basic investing packages offered by brokers or securities firms. Because some people like to test the waters before diving into a larger investment, the REIT might be a good beginner option. There are however real estate investment trusts pros and cons that should be examined prior to making any monetary investments.
What are REIT Index Funds?
The most basic type of fund is know as the REIT index. This is a portfolio of several investments like stocks that are broken up into manageable investments by a trustee. Because this type of fund needs to be managed by a third party, an account owner will have limited decision making power when investing or withdrawing funds in this marketable security.
Types of Diversified REIT Accounts
Contrary to what some beginner investors can believe, there is now only one type of REIT that can be used to build a cash portfolio. While a generic way to recognize funds is to classify them as residential or commercial, a diversified portfolio clearly showcases where dollars are invested and what returns are offered.
8 Types of REIT Portfolio Investments
2. Office Space
8. Resort or Hotel
3 Pros of Investing into REIT Accounts
1. Small Amounts of Cash is OK
2. Funds Pay 90% Profits to Account Owners
3. Relatively Easy to Buy Online
The size of each REIT in dollars is what drives the future investments by the trustee. When many adults invest cash at the same time, the fund can purchase more types of real estate to build capital for all owners. Most real estate investment trusts are setup to build wealth over a 3, 5, 7 or 10-year range.
3 Cons of REIT Investing in the U.S.
1. Tenant Vacancies Can Devalue the Fund
2. Interest Rate Increases Can Decrease Income
3. Account Service Fees Required
Tenants who are not renting commercial or residential real estate will affect the price of an REIT and drive down profits for investors. Interest rates are tied to all stocks and will decrease profits when rates rise.
Every trust provider has separate account management fees that are payable monthly, based on purchases or annual investment monitoring services. Some account fees can be as high as 15% and seriously reduce profits that an investor will earn throughout the year.
Alternatives to Real Estate Investment Trusts
A step up from a typical index fund is the investment property. Unlike homes that are bought and flipped, a rental home that is managed brings in income for investors monthly at ROI as large at 15 percent. To learn more about turnkey investments in real estate, download the free guide listed on this page.