Real estate provides many career paths, not just as a real estate agent. Real estate investors make a great living too, but sometimes you don’t want to invest in physical real estate yourself. It’s a lot of hard work, responsibility, and hassle. For some, investing in real estate investment trusts (REITs) is a better option.
Many people wonder though, are real estate investment trusts a good career path? What potential does it offer in comparison to other types of real estate investment? We investigate in more detail below.
What Are Real Estate Investment Trusts?
A Real Estate Investment Trust is an investment fund that’s pooled with many other investors. You invest in a portion of a real estate project in either its equity or debt and earn prorated returns. Most REITs are in commercial properties such as hospitals, apartments, and shopping malls.
How Do They Work?
When you invest in REITs, you’re investing in a liquid asset, versus when you buy the real estate yourself and are ‘stuck.’ You can buy and sell REITs on the market and because you invest in multiple properties (different types too), you diversify your risk.
For a company to qualify as a REIT, it must distribute at least 90 percent of its taxable income to shareholders.
There are a few different types of REITs you can invest in:
- Equity REITs – You invest in the purchase and management of income-producing properties. A few good examples include apartments and shopping malls. When you invest in an equity REIT, you take on the financial role of a developer without the responsibility of building and managing the property. Most equity REITs pay dividends from the rental income and profits earned from selling property.
- Debt REITs – If you’d rather be on the ‘back-end’ of the investment, you can invest in mortgage REITs. These REITs finance the property, or the pooled funds provide the mortgage. The income on debt REITs is the interest charged on the loan. You earn dividends from the interest, which can vary based on the market’s performance.
- Hybrid REITs – To diversify your risk, even more, you can invest in a hybrid REIT, which is a combination of an equity and debt REIT. You’ll earn dividends from rental income, capital gains, and mortgage interest.
Pros & Cons Of Real Estate Investment Trusts
Like any investment and career in real estate, REITs have many pros and cons including:
Pros:
- Opens up the opportunity for anyone to invest in real estate. With less capital required, anyone can invest in real estate and earn attractive returns.
- REITs have great liquidity. If you need money fast, you can sell your shares on the open market and have your funds in a few days.
- REITs are fully vetted. They only invest in properties with developers and managers with a solid history in real estate and with a history of paying their debts on time.
- REITs are easy to diversify. You can invest in a large variety of commercial properties, diversifying your risk.
- Tax treatment is much simpler than the taxation of owning the properties yourself.
Cons:
- Investing in any type of real estate is risky because tenants can default or vacate the property, leaving you with the debt, but no income.
- Real estate values can fluctuate. Just like the stock market, real estate is dependent on many economic and political factors which can affect your investment.
- You have to rely on someone else to manage the property and the debt. Your income relies on their actions.
Career Options With REITs
To be a part of the Real Estate Investment Trust team, here are the positions you can hold:
- Developer – This team develops the property from the ground up. They are the core of the REIT team because, without developers, there isn’t a property. Developers work with contractors and subcontractors to get the job done.
- Property management – Property managers handle the daily operations of the building. They are solely in charge of the property’s profits and how it operates.
- Asset management – The asset manager oversees the entire REIT portfolio and answers to the investors. The manager decides which assets to invest in and monitors their performance, reporting back to investors.
- Investor relations – If you love dealing with investors, answering their questions, and holding annual meetings, this could be the job for you.
Should You Start A Career In REITs?
A career in REITs is a specialized career. If you have an interest in real estate investing, but don’t want the pressure of owning it yourself, a career in REITs can be a good option.
You must decide how you want to earn your income. If it’s as an investor, you can invest in REITs. They have a low barrier to entry making it easy for anyone to start investing. The earlier you invest in real estate, the more time your earnings have to compound, turning your investment decision into a full-blown income stream.
If you’d rather be hands-on, you can choose one of the roles that make up the REIT team, as it’s a large team. You’ll need the proper education and experience to be added to a profitable team. Think about which area of real estate you care about the most and focus your efforts there.
You’ll be helping yourself earn income and profits, but you’ll also help your team of REIT investors earn another income stream too. It’s a rewarding career no matter which side of the REIT you choose to work on, but it’s hard work too. You’ll need dedication and passion for real estate to make it work.