Investing In REIT: A Sensible Choice
February 04, 2011 : Posted by: admin : Category: Tips & Tricks : Comments Off : Add CommentAs an average investor you may find it difficult to select the most suitable investment vehicles while creating a balanced portfolio. You may get overwhelmed by the varieties of investment options of available. While bonds are safest mode to preserve capital and deliver steady return, stocks are most rewarding options but vulnerable to market volatility. Some enterprising investors and traders are exploring new avenues like ETF, forex, derivatives and options to earn better return. Others prefer leaving it to expert hands and go for mutual funds. Mutual funds are probably most simple and popular mode of investing in a capital market. REIT (Real Estate Investment Trust) is a potentially rewarding investment opportunity that has attracted many savvy investors.

A REIT collects money through IPO (Initial Public Offering) and utilizes it for managing, developing and selling real estate assets. When you are buying units of REIT through its IPO, you are virtually buying a part of this managed fund. The fund generates profit by renting, selling or leasing properties. A part of the income is deducted as administrative cost and the rest of income is distributed among REIT holders at regular intervals. There are several attractive features of investing in a REIT. Let us focus on a few of them.
While buying units of REIT, you are virtually investing in physical assets having a long life. In general, price of properties witness steady growth over a certain period of time. This holds true for rental and leased properties where the rent and lease amount appreciates steadily. Owner of the REIT units is benefited from value appreciation that generates handsome return.
Investing in real estate has been a dream for many average investors who could not afford it for lack of huge capital or legal and some other problems. With the advent of REIT, small investors are offered opportunity to invest in different types of properties with wide ranges of valuations and spanning over different locales. Such diversification enables minimizing risk that is associated with investing in a single asset.
Distribution of income is probably the most attractive feature of REIT. It distributes nearly 90% of the annual taxable income among the shareholders. Return generated from a REIT is better than that from a mutual fund where dual tax and administrative cost reduce the real income.
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