Any seasoned commercial real estate investor understands the power of diversifying their portfolios with real estate stocks. This is especially true as we head into a potentially volatile and unknown economic environment and real estate market. As a result, many investors are carefully assessing strategic opportunities to diversify and grow said portfolios – but with less risk.
Investing in real estate investment trusts (REITs) gives individuals the benefits and exposure to cash flow from rental income, all without having to personally own and manage rental properties.
Here we are discussing the different REIT structures available and why now is a particularly attractive time to add REITs to your portfolio. Plus, we’ll cover some of the best REITs to invest in today.
Types of REIT Structures
Just like any other investment, there are a number of structures for REITs. Each one varies in ownership structure, liquidity, industry and other defining features. In many cases, the terms of your investment will depend on the structure of the REIT.
Here are some of the main structures:
- Publicly-traded REIT stocks: You can easily buy and sell them at any time on the stock market; best for investors with some investing experience.
- Publicly-traded REIT mutual funds/ETFs: Provides added diversification by investing in multiple REITs; best for beginners who are unsure how to choose individual stocks.
- Private REITs: Not publicly traded; best for institutional and accredited real estate investors who can meet the high minimum investment.
- Public non-traded REITs: Registered with the SEC but not publicly traded; best for experienced investors who have long investment timeframes.
- REIT preferred stock: Performance is similar to bonds, and investors receive dividends ahead of other investors; best for investors who don’t like much price volatility.
By considering your investment goals and timeframes as well as your understanding of the best real estate stocks, you will be better positioned to select the REIT structure(s) that best suits your investment strategy. And, of course, another main consideration is which structure diversifies your portfolio.
Advantages of REIT Investing
Investing in a REIT versus real estate property is a much more hands-off approach, and generally doesn’t require as much capital either.
REITs can help investors quickly uncover portfolio diversification opportunities, which is especially valuable as we face volatility on Wall Street. Rather than owning just one investment property or real estate in one concentrated area, investing in a REIT will give you the diversified exposure to different types of properties and different regions of the country.
Plus, real estate companies have large portfolios of properties with tangible value. As such, the value of those real estate assets does not fluctuate as easily as other types of securities, making it a more stable investment option. This is compared to equity securities, which can swing based on changes in consumer preferences or the emergence of new competitors.
Additionally, the dividend income is another advantage of investing in REITs. These funds can receive preferential tax benefits if they pass 90% of the taxable income back to shareholders. Thus, REITS tend to be big dividend stocks for this reason, providing reliability of income to shareholders over the long term.
The 5 Best REITs to Invest in for Diversification
As we’ve discussed, REITs can vary by industry, geography and other defining factors, making them particularly great vehicles for building diversification to weather market volatility. Here are some of the best real estate stocks to consider for this purpose:
- Stag Industrial (STAG): This ~$6 billion REIT is focused on industrial facilities, such as logistics companies and manufacturers over residential properties. It offers strong stability based on its long-term leases, 400 different properties and 72.5 million square feet of property.
- Sabra Health Care (SBRA): This healthcare REIT operates nearly 450 specialty healthcare sites. It is preferred for its high quarterly dividend and the fact that healthcare expenses tend to be reliable and recession-proof.
- Claros Mortgage Trust Inc. (CMTG): CMTG is a mortgage-focused REIT mostly involving CRE loans in major U.S. cities. Investors like it for its focus on senior debt that will be repaid first and for its high dividend yield.
- Digital Realty Trust Inc. (DLR): This is a tech-focused REIT with more than 290 high-tech data centers globally. It offers double the dividends of the S&P 500.
- Rayonier (RYN): This leading timberland real estate investment trust owns and leases ~3 million acres of timberland in the U.S. South, Pacific Northwest and New Zealand. It gives investors exposure to commodities as well as a REIT.
About Extensia Financial
Established in 1998 and headquartered in Simi Valley, CA, Extensia Financial is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate lending. For decades, we have partnered with credit unions across the country to offer competitive and collaborative CRE loans. We also uniquely support and guide our partners through the entire lifecycle of our loans. Extensia Financial is a proud member of the AVANA Family of Companies.
Contact us today to learn more about becoming an Extensia Financial partner.