REIT Investing for Beginners: What to Know Before Investing in REITs

Written By Mike Munno

Posted January 17, 2024

If you’re interested in REIT investing for beginners, you’ve come to the right place. REIT stands for Real Estate Investment Trust and they are utilized by investors of all kinds. But what exactly is a REIT? And are there special rules when it comes to REIT investing for beginners? Let’s break it down…

At its core, a REIT is a company that owns, operates, or finances income-generating real estate.  These are mainly residential, commercial, or industrial properties.

REIT investing for beginners

The primary objective of a REIT is to generate income for its investors through the ownership and management of diverse real estate assets. Unlike traditional corporations, REITs are mandated by law to distribute a significant portion of their income as dividends to shareholders. This characteristic makes them an attractive option for income-seeking investors. Especially for those looking to earn passive income.

For investors seeking a consistent stream of passive income, REITs stand out. The legal requirement for REITs to distribute the majority of their taxable income as dividends translates into regular income streams for shareholders. This income can be particularly appealing for retirees or those looking to supplement their overall investment portfolio with reliable cash flow.

These trusts offer investors the chance to own a share of a diversified real estate portfolio, often managed by professionals with expertise in the industry. They almost sound too good to be true. But I can assure you, they’re not. So, what are the pros and cons of REIT investing for beginners? Let’s get into it. 

Benefits of REIT Investing For Beginners

1. Diversification:

REITs grant investors exposure to a broad range of real estate assets. This diversification helps spread risk and reduces the impact of a downturn in any specific sector.

2. Liquidity:

Unlike owning physical properties, which may take time to sell, REIT shares can be bought or sold easily on the stock exchange. This liquidity provides flexibility to investors.

3. Passive Income:

REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This feature makes them an attractive option for those seeking a steady stream of passive income. Remember though, REITs are more than just dividend stocks.

4. Professional Management:

REITs are managed by experienced professionals who handle property acquisition, management, and development. This allows investors to benefit from the expertise of seasoned real estate experts.

REIT Investing for Beginners - The Benefits of REITs

REIT Investing For Beginners: Potential Risks and Challenges

As with all investments, there comes a set of potential risks and challenges with REITs. While they’re not a dealbreaker for most, you should know what you’re getting into. 

1. Market Sensitivity:

REITs are influenced by market conditions and economic factors. Changes in interest rates and economic downturns can affect property values and rental income.

2. Interest Rate Risks:

Rising interest rates can pose challenges for REITs, as the cost of borrowing may increase. This can impact their profitability and, consequently, dividend payouts.

3. Property-Specific Risks:

The performance of individual properties within a REIT’s portfolio can vary. Factors such as location, tenant quality, and property management can impact returns.

Types of REIT Investing For Beginners & Experts Alike

There are various types of REITs, each catering to different investment preferences. Become familiar with the different types and see what fits your investing style the best: 

1. Equity REITs:

These REITs primarily own and operate income-producing real estate. They generate revenue through rent collection from tenants, making them a solid choice for income-focused investors. Most REITs that investors buy fall into this category. 

2. Mortgage REITs:

Mortgage REITs focus on providing financing for income-generating real estate by investing in mortgages and mortgage-backed securities. Their earnings come from the interest on these investments.

3. Hybrid REITs:

As the name suggests, hybrid REITs combine features of both equity and mortgage REITs. They own and operate real estate properties while also engaging in mortgage financing.

Investing in REITs for Beginners - Types of REITs

Investing in REITs For Beginners: The Meat & Potatoes

1. Stock Exchanges:

REITs are traded on major stock exchanges, making them accessible to investors through brokerage accounts. Investors can buy and sell REIT shares like any other publicly traded stock.

2. REIT Mutual Funds and ETFs:

For beginners seeking diversification, investing in REIT mutual funds or exchange-traded funds (ETFs) can be a convenient option. These funds pool money from various investors to invest in a diversified portfolio of REITs.

3. Research and Due Diligence:

Before investing, conduct thorough research on the specific REIT, its management team, the types of properties it owns, and its historical performance. Analyzing financial reports and understanding market trends is crucial.

4. Risk Consideration:

While REITs offer diversification, it’s essential to recognize that they are still subject to market risks. Economic downturns, interest rate fluctuations, and changes in the real estate market can impact their performance.

Will This Be Your First REIT Stock?

If you’re ready to harness the power of REIT investing, I’ve got someone I’d like to introduce you to:

REIT Investing for Beginners - Jason Williams

No, not Shaq. If you don’t already know the guy on the right, his name is Jason Williams. He writes for Wealth Daily and also runs a premium investment newsletter called The Wealth Advisory. In his Wealth Advisory portfolio, Jason has a couple of REIT stocks that are doing quite well. And they don’t show any signs of slowing down, either. 

You see, Jason was the first person to introduce me to REITs when he told me about Innovative Industrial Properties, Inc. in 2016. IIPR was a new REIT ready to take advantage of the cannabis boom and Jason was very excited about them.

And for good reason. IIPR continued to go on a monumental bull run:

REIT Investing for Beginners - IIPR Chart

Not only did the stock price climb higher and higher, but investors collected a nice dividend yield. Jason and his subscribers are currently up 518% on IIPR, and that’s AFTER the dip. With federal legalization and a reclassification being discussed for cannabis, IIPR could go on another run. 

Now, while IIPR is still a great REIT to consider, it’s not the REIT I want to tell you about today. Much like with IIPR, Jason has found another REIT that he thinks has massive potential. And the best part? They haven’t gone on their historic run yet. In fact, things are just starting to heat up.

I don’t want to steal Jason’s thunder, though. I’ll let him do the honor of giving you the details on his latest REIT play.  

Final Thoughts on REIT Investing for Beginners

REIT investing offers beginners an accessible and diversified entry into the real estate market. That isn’t to say REIT investing for beginners is a guarantee, though. Nothing in the stock market is. That being said, with the potential for passive income, professional management, and liquidity, REITs are a great choice for beginners to consider. That’s why REITs have become a popular choice for investors looking to diversify their portfolios and make money in the process.

And as you can see above with IIPR, owning a quality REIT can do wonders for your portfolio. Not only do REITs offer passive income through dividends, but you’re actively participating in the real estate market without having to dirty your hands or take as many risks. 

Remember, beginners (and even expert investors) must conduct thorough research, understand the risks involved, and consider their investment goals before diving into the world of REITs.

If you haven’t already, I highly suggest that you take a look at Jason Williams’ latest REIT play. Not only will Jason give you the details on this developing situation, but he’ll also explain exactly why he believes this REIT has so much potential. 

Before we part ways I’d like to say, REIT investing for beginners is only as hard as you make it. Use the resources available to you and make smart decisions. If you do those two simple things, REIT stocks will reward you for years to come. 

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