There are different ways of investing in real estate besides just going out and purchasing commercial real estate yourself. For example, you could invest in a real estate investment trust.
According to Investor.gov, a REIT is a way for you to invest in commercial real estate without the inconvenience of full ownership. The rewards can be great, but so can the potential risks.
How does a REIT work?
A REIT is a company that purchases property not to develop and resell it but to operate it as part of an investment portfolio. If you buy into a REIT, you receive a share of the profits generated. A REIT may purchase commercial properties such as shopping malls or office buildings. It may also purchase property intended to generate income for investors, such as apartment complexes.
What are the different types of REITs?
Before you invest in a REIT, you should understand the different types available. All REITs have registered with a government agency called the Securities and Exchange Commission. This allows for public trading on a stock exchange. A non-traded REIT is one that has the SEC registration but does not participate in public trading, while publicly traded REITs go on the stock exchanges.
What are the differences between the two types of REITs?
Publicly traded REITs offer fewer risks but pay more modest dividends to you as an investor. Non-traded REITs can yield greater rewards but the risks are greater as well.
Both types of REITs can add real estate to your investment portfolio. Each has its own strengths and weaknesses, and neither is inherently superior to the other. Nevertheless, you should consider the risks and benefits of each and be sure which type of REIT you are buying into before making your purchase.