A Beginner’s Guide to Understanding Real Estate Investment Trusts
Real estate investment trusts (REITs) are, simply put, a form of real estate management that makes commercial real estate profits available to everyone. They also happen to be one of the best opportunities out there in terms of returns.
In this book, real estate and asset management guru Michael Allard explores the history, structure and potential of REITs as one of the hottest and most potentially lucrative investment vehicles in the market today.
- Learn about the world of real estate investment
- The history of real estate investment trusts
- Why they are the best choice for investors
- How to make educated investment choices
- Why REITs are perfect for both individuals and organizations, and how anyone – absolutely anyone – can get into it.
Using concise and experience-backed information, the author explains how investors, both large and small, are beating the S&P 500s with REITs and how REITs combine superior income and growth with relative safety, with behind-the-scenes information on how to assemble and launch a successful venture, and statistical support for market confidence in the long-term appreciation potential of these funds.
Whether you are a real estate investment professional seeking comprehensive information on today’s REIT operational requirements, an investment professional needing to better understand REITs, or an individual investor interested in diversifying your own portfolio into real estate, this comprehensive book will open your eyes to the incredible opportunities available in today’s market.
Because informed investments aren’t risks: they are opportunities.
This book aims to provide people with the knowledge and tools to make an educated decision about one of the most profitable investment niches available: real estate investment trusts REITs.
Excerpt From Informed REITs Investing
Foreword/Introduction
A long, long time ago – back when I was just a kid fresh out of college, thrilled and mesmerized by the flashy spectacle that was my first job in Wall Street – one of the many mentors I would end up having impact my life told me this: Investing isn’t about taking risks. It’s about management – of expectations, of knowledge and, of course, of assets. Up until that point, even with my fancy degree, investing was a gamble. An educated one, sure, but still just a bet in favor or against the odds. This guy made me understand that investing is only a gamble if you don’t do the homework. “That’s what we offer our clients,” he explained. “Not the act of making the acquisition, but the advice and expertise necessary to educate them so they know how and when to buy.”
I took that lesson with me through that first job, and my second, and my third, and along with me when I opened up my own consultancy (which I’ve since sold, as part of one of those educated decisions I just mentioned). The reason I bring that up is because I know not everyone feels the same my mentor did, and I still do, about helping people make the best decisions. Nowadays, it seems it’s all about cold service, with no real dedication and care for the people that seeking assistance. And that’s what this book is. No more, no less.
REITs have proven a wise investment for me over these recent years and I know there are others out there for whom it can do the same. Maybe that’s not you, dear reader, or maybe it is. My job now, with this book, is to educate about what real estate investment trusts are, why they might be worth it for you, and how best to optimize returns. Your task, once you finish reading, will be to decide if you want to follow through. REITs are a great opportunity for investors, large and small. I do believe that. They are a kind of company that owns and, in the majority of cases, manages real estate holdings that generate revenue for the company. This also comes with a series of added benefits that change from country to country, such as tax incentives. Which is why it’s important that you do your own local research if you decide to proceed.
In fact, just to illustrate why location matters, I should note that, in the case of the US, for example, it was Congress that came up with the concept of REITs to make it possible for average citizens to buy real estate. Before the framework was put in place, individuals who had a considerable amount of money were the only ones who could participate in the game. Now, however, the playing field is more level for everyone. Now it can be as easy as just a few clicks of a mouse by almost anybody who has a brokerage account, some spare cash, and internet connection.
Look, I don’t have a magic ball. I don’t need one. I can tell you this, though: In this book, I will lay it all down for you, every piece of information that you need to make the best possible decisions. I’m not here to convince you of anything, just to educate you. Because I believe REITs are worth it, but only if you learn the trades first.
Education will be our friend in this journey, because it’s with information that we turn blind bets into informed decisions. If you’re looking for a quick, easy buck, might be best to look somewhere else. If not, I’m glad you’re here, with me, in this road. Together, we’ll turn risks into opportunities, and, hopefully, you’ll feel empowered and informed enough to seek out your fortune.
Enjoy.
-Michael Allard
Chapter 1
Real Estate Investment Trusts
A REIT is a kind of organization that owns and, in the majority of instances, manages income-generating real estate properties. REITs can acquire a diverse portfolio of commercial real estate, including office and apartment buildings, storage facilities, hospitals, retail complexes, hotels, and commercial forests. Some REITs are also involved in the real estate finance industry.
They were created back in the 60s by the Eienhower administration as part of an effort to give all types of investors to invest in diversified portfolios of income-producing real estate, much in the same way as they might in other classes of assets. This matters, because the regulations governing REITs in most nations allow real estate companies to pay lower rates of corporation tax and capital gains tax, not to mention the fact that they have the potential to be either publicly traded on major markets, publicly registered but unlisted, or even stay private.
Equity REITs and mortgage REITs are the two primary categories of real estate investment trusts. In the Global Industry Classification Standard that was released by S&P Dow Jones Indices and MSCI in November 2014, equity REITs were acknowledged as a separate asset class for the first time. The net asset value (NAV), funds from operations (FFO), and adjusted funds from operations are the most important metrics to consider when analyzing the financial status and activities of a REIT (AFFO).
All these terms might seem daunting now, but it’ll all become clearer as we delve deeper and explore the various benefits of REITs. That said, they are not without detractors. REITs have been the target of criticism for how they enable speculation on housing and decrease housing affordability while not boosting financing for development. This, too, we will explore to better balance the information.