I’ve been told to look into this as a safe investment. But I’m quite bad at understanding anything to do with stocks and trades.
How does it work and how does it make money?
In: Economics
REITs aren’t necessarily safe. They can be pretty volatile, just like the general stock market. An REIT is basically a group of people getting together to combine funds, which are then used to buy property and rent it at a higher price than it cost them to acquire that property. That’s how they make money. You get back a percentage of the profit as a proportion of your contributions (minus an administrative fee). You make money by getting that money back as a dividend or by the value of the stock that you buy rising as they become more profitable or the value of the real property they own increases and people are willing to pay more for that stock.
REIT stands for Real Estate Investment Trust. It’s a company that owns and manages properties like apartment buildings, shopping malls, offices, or hotels.
Imagine you and your friends want to buy a big building, but it’s too expensive. Instead, you can buy a small part of a REIT. This way, many people can own a piece of many properties together.
REITs make money through:
-collecting rent from the people or businesses using their properties.
-after paying expenses, they share most of the profit with the people who own parts of the REIT (called shareholders).
-when the properties the REIT owns increase in value, the price of the REIT shares may also go up.
So, when you invest in a REIT, you generally earn money in two ways:
1. Through the shared profits (called dividends)
2. By selling your shares if the price goes up
It’s real estate, so not always a safe investment, especially considering commercial property crises and residential real estate being way overvalued currently. It was a better investment 5 years ago.
I don’t remember the details, but something to look into before going that route is how taxes with REITs work. I seem to remember it being less preferable than index ETFs, even if the gains are potentially slightly better (not that they currently are, they were when I was researching).
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