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How to invest in real estate investment trusts (REITs)
What to know about REITs and how you can incorporate them into your investing strategy.
How to buy REITs
- Compare investing platforms. Narrow down top platforms that fit your goals and offer REIT stocks, mutual funds and exchange-traded funds.
- Open your brokerage account. Complete an application with your personal and financial details.
- Confirm your payment details. Link an account to fund your trades.
- Research the REIT. Find the REIT by name or ticker symbol and determine if it’s a good investment for you.
- Purchase now or later. Buy your desired number of shares with a market order or use a limit order to delay your purchase until the REIT reaches your desired price.
- Check in on your investment. Optimize your portfolio by tracking your REIT.
Top REITs for 2022
Here are top-performing REITs so far this year, according to Finviz data. Information is accurate as of June 2, 2022.
Preferred Apartment Communities is a REIT that invests primarily in Class A multifamily properties, with some investments in income-producing, grocery-anchored shopping centers. Its portfolio includes 113 properties in 13 states — most in the Southeast.
- Price: $24.96
- Performance YTD: 38.26%
- 1-year return: 143.37%
- 52 Week Range: $9.64–$25.80
- Dividend yield: 2.72%
- Analysts’ opinion: 3 Strong Buys, 1 Buy and 1 Hold*
- Analysts’ consensus recommendation: Buy*
*Compiled by Yahoo Finance
Nexpoint Real Estate Finance is a REIT focused on investments in the multifamily, single-family rental, self-storage, hospitality and office sectors, primarily in the top 50 metropolitan statistical areas.
The company originates, structures and invests in first-lien mortgage loans, mezzanine loans, preferred equity, preferred and common stock and alternative structured financings in commercial real estate properties, as well as multifamily, commercial mortgage-backed securities.
- Price: $24.41
- Performance YTD: 26.03%
- 1-year return: 16.92%
- 52 Week Range: $17.96–$25.98
- Dividend yield: 8.19%
- Analysts’ opinion: 1 Strong Buy and 1 Buy*
- Analysts’ consensus recommendation: Strong Buy*
*Compiled by Yahoo Finance
Farmland Partners is a REIT that invests in high-quality farmland throughout North America. The company owned approximately 160,000 acres in 17 states, on which over 100 tenants grow 26 major commercial crops.
- Price: $15.10
- Performance YTD: 25.19%
- 1-year return: 16.87%
- 52 Week Range: $10.62–$16.43
- Dividend yield: 1.59%
- Analysts’ opinion: 2 Strong Buys and 3 Holds*
- Analysts’ consensus recommendation: Hold*
*Compiled by Yahoo Finance
Compare platforms to invest in REITs
Pros and cons of investing in REITs
- Liquidity. Unlike physical real estate, publicly traded REITs are highly liquid and can be traded like stocks on an exchange.
- Low barrier to entry. Invest in REITs with as little as one share at the current share price.
- Financial benefits. REITs offer investors the benefits of high dividend yields combined with share price appreciation.
- Diversification. REITs provide an efficient way to diversify your investments and reduce risk.
- Access to commercial real estate. REITs provide a more accessible way to invest in commercial real estate than purchasing the entire property.
- Taxes on dividends. The majority of REIT dividends are taxed as ordinary income according to your marginal tax rate. Dividends paid by some company stocks that you’ve held for at least two months are qualified and taxed at lower capital gain rates.
- Market risk. Natural disasters, recession, changes in interest rates and other factors can affect the entire financial market simultaneously, including publicly traded REITs.
- Trend risk. Some REITs can be influenced by trends. And if a trend turns unfavorable, the REIT can suffer. For instance, a REIT with a portfolio of shopping malls may not be as profitable now that malls are on the decline.
- Potential high fees and risk. Unlike publicly traded REITs, non-traded REITs are illiquid, charge high upfront fees and lack share value transparency.
REITs offer an affordable way to invest in real estate and are chock-full of benefits. Publicly traded REITs in particular are highly liquid and provide investors with a stream of income and potential share price appreciation at a low cost. But investors need to understand what types of properties are in the portfolio and prepare to pay taxes on dividends.
If REIT investing doesn’t sound right for you, learn about other investment options that can better complement your portfolio and goals.
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