Residential real estate investments can offer an attractive way to invest in residential real estate. On top of that, REITs may be a good source of financing for residential real estate projects, which can be a good way to hedge against inflation.
Continue reading this guide to learn more.
What Is a Residential REIT?
A residential REIT, or real estate investment trust, is a kind of investment that owns, operates, and invests in income-producing real estate. Residential REITs primarily focus on properties that are used for residential purposes, such as apartments, single-family homes, and other types of housing.
Residential REITs offer a way to invest in the country’s real estate market without having to own or manage properties directly. These REITs are typically structured as publicly traded companies, making them easy to buy and sell. And, because they are required to distribute a part of their taxable income to shareholders, investors are able to receive regular income.
What Is a Residential REIT ETF?
Investing in residential real estate can prove to be a challenge for individual investors. It can be difficult and expensive to purchase and manage properties. This is where residential REIT ETFs can be helpful, as it is a type of exchange-traded fund that invests in REITs that focus on residential property. These ETFs provide investors with exposure to the performance of the residential real estate market.
The residential real estate market has historically been a reliable source of income and appreciation, and the exposure that residential REIT ETFs comes without having to directly purchase and manage properties. Over the long term, residential property values have tended to increase at a rate slightly above the inflation rate.
What Are the Pros of Residential REIT?
There are many benefits to investing in a residential REIT. Here are some of the most appealing aspects to expect as an investor looking into getting into a residential REIT:
- Diversify Your Portfolio. REITs offer investors the chance to diversify their portfolios across different sectors and asset types. By investing in a REIT, you can add a new real estate asset type to your portfolio. Not only does it create a balanced mix in your investment portfolio, but it can also help to mitigate risk in different real estate asset types.
- Attain Dividend Payments. One major benefit of investing in a REIT is the ability to receive regular dividend payments. Unlike other investments, such as stocks or bonds, REITs are known to pay around 90% of their taxable income as dividends to their shareholders. This makes them an attractive investment for income-seeking investors.
- Get Recession Resistance. REITs have also been shown to be relatively resistant to economic downturns. This is due to different factors, including the fact that REITs are required to pay out such a high percentage of their income as dividends, as well as the fact that they tend to be diversified across different sectors and asset types.
What Are the Cons of Residential REIT?
While there are a variety of advantages to investing in a residential REIT, it’s key to recognize that there may be certain disadvantages as well. For example, an investor may:
- Experience Rising Interest Rates. One main disadvantage of investing in a residential REIT is that it can be sensitive to changes in interest rates. This is because higher interest rates can lead to higher mortgage rates.
- Witness Property Tax Increases. Property tax increases can occur because the value of the underlying property portfolio will be used to calculate the REIT’s property taxes. If property values rise, so too will the REIT’s property taxes.
- Get Mixed in Tax Drawbacks. Investing in a residential REIT can also have mixed tax implications. Dividends paid by the REIT are generally taxed, and there’s a chance of paying more in taxes when not handled correctly.
When Should You Invest in Residential REIT?
It’s a common question to ask when the best time to invest in a residential REIT is, as timing is truly everything. Generally speaking, the best time to invest in any type of REIT is when the market is undervalued. This is because you can buy shares of the REIT at a discount and then wait to correct itself and the value of your investment to go up.
With that being said, trying to time the market is never an exact science, and there is always some risk involved. However, if you believe that the market is currently undervalued, then investing in a residential REIT could be a good way to profit from the eventual market correction.
How Do You Invest in Residential REIT?
If you’re interested in investing in a residential REIT, there are a few things you need to do first. Here’s a quick point-by-point list of what to do when preparing to invest in a residential REIT.
- Do Your Research. There are many different REITs out there, and they all have different strategies, risk profiles, and expected returns. It’s paramount to find the REIT that is the best fit for your investment goals.
- Open a Brokerage Account. Once you’ve done your research, the next step is to open a brokerage account. This is where you will buy and sell your REIT shares. As a general rule, try to figure out what’s the best fit for you.
- Buy or Invest in a REIT. Once you have a brokerage account set up, you can then buy or invest in a REIT. There’s the option of buying shares of a REIT that is traded on a major exchange or by investing in a private and individual REIT.
- Work with an Expert. If you’re looking for more guidance on investing in residential REITs, you can work with an expert. The ideal real estate investment will make sure it is the right investment for you.
Investing in a REIT can be an appealing way to invest in real estate without directly owning or managing the property. REITs offer investors diversification, liquidity, and potential for income and capital appreciation, so it’s truly worth looking into.
Want to know more about REIT? Evergreen Investments connects homeowners to different wealth-building opportunities from their residential real estate assets through homeownership. Get in touch with us today!