If you’re looking to invest, you may have decided that commercial real estate is a vital component of a diverse portfolio. This reasoning is sound: investing in property is relatively low risk, but offers potentially higher total returns, making this choice an effective counterbalance to bonds, stocks and cash. These benefits are only magnified when you invest in a real estate investment trust, or REIT. The real estate partners who manage REITs typically own and control income-producing commercial property, allowing you to benefit from the skills and experiences of practiced investors. With all of these factors in favor of this choice, it is no wonder if you are wondering how to invest in a REIT. However, because you can learn how to invest in REITs, you should know how to assess potential options to identify the best opportunities. For some helpful tips about this important stage, read on.
Look At Their History
A REIT is able to provide high-dividend yields as well as moderate long-term capital appreciation. These are reasons enough to think about researching how to invest in REITs, but because both of these demonstrated over time, you need a company with a proven track record. Look for companies that have a record of accomplishing both.
Check Out Their Properties
You are investing in real estate, after all. If you’re considering an REIT, don’t forget to check out their properties and tenants. If these two factors don’t demonstrate quality, don’t invest.
Pay Attention to Strong Management
What qualifications does the company you are considering have? How experienced is their management team? Remember that a skilled, well-versed group is important when it comes to finding good properties and investment opportunities.
Take a Look at Their Funds From Operations Ratio
A REIT’s funds from operations (FFO) are defined as net income minus the sale of any property in a given year and depreciation. Unlike other popular metrics, this prevents depreciation from overestimating declines in property values. To see how this will affect you, simply take the dividend per share and divide it by the FFO. Look for higher yields to find the best REITs.
Don’t Forget Liquidity
Liquidity is defined as the degree to which asset can be bought or sold without affecting its price. Real estate is therefore not always considered a liquid asset, as property prices are affected by the stock market. For this reason, look for REITs with high quality properties that have maintained stable values.
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