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10 Best REITs to Invest in for Reliable Income in 2023
If you're just getting into investments or are a seasoned investor looking to expand your investment portfolio, then REITs is probably a term that you've heard.
But what exactly is a REIT and why is it becoming a popular type of investment?
In this article we cover what REITs are and all you need to know as an investor about this type of investment.
- REIT stands for Real Estate Investment Trust
- REITs have become a popular type of investment among investors who are looking to expand their investment portfolios
- REITs fall into three main categories divided by their investment holdings: Equity, mortgage and hybrid REITs
- 10 best REITs to invest in for reliable income in 2023
- Diversification and financial performance are some factors to look at when investing in REITs
- Some pros of investing in REITs include potential for steady income and liquidity
- Some cons include risk of poor management and interest rate risk
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.
What is a REIT?
REIT stands for Real Estate Investment Trust.
A REIT is a publicly traded company that owns or operates income producing real estate property. REITs are a type of investment vehicle that invest in real estate properties, such as apartment buildings, office buildings, shopping centers, hotels, and other real estate assets.
REITs allow individuals to invest in real estate without actually owning property themselves. How it works is that investors can purchase shares of a REIT, which owns and operates the real estate assets and generates income from rent, lease payments, and property sales.
That way, investors are able to earn good dividends as REITs are known to pay monthly dividends to their shareholders and investors. This makes them a good passive income stream.
The popularity of REITs is growing among investors who are interested in expanding their portfolio beyond mutual funds and publicly traded company stocks.
How do REITs Actually Work?
REITs were created in 1960 by Congress as a way of allowing individual investors to own equity stakes in large-scale real estate companies. They enable investors to gain real estate exposure as well as easily diversify their investment portfolio.
For REITs to operate in the market, they must meet the following standards that have been set by the IRS:
- Pay out at least 90% of their taxable income to shareholders in the form of dividends. This makes REITs an attractive investment option for those seeking a steady stream of income.
- At least 75% of the REIT's assets must be invested in real estate-related assets, such as property, mortgages on real property, and real estate-related securities.
- At least 75% of the REIT's gross income must come from real estate-related sources, such as rent from properties, interest on mortgage loans, and gains from the sale of real estate-related assets.
- Have a minimum of 100 shareholders after the first year of existence.
- Have no more than 50% of its shares held by five or fewer individuals.
- REITs must have a board of directors and be managed by a professional real estate management team.
- REITs must be organized as corporations, trusts, or associations and must be taxed as a corporation.
By adhering to these rules, REITs don’t have to pay tax at the corporate level, which allows them to finance real estate more affordably. That means that they can earn more profits to pay out to the investors.
Types of REITs
There are several different types of Real Estate Investment Trusts (REITs), each with a different focus and investment strategy.
REITs fall into three main categories divided by their investment holdings: equity, mortgage and hybrid REITs. Some other common types of REITs include:
These REITs own and operate healthcare related real estate, such as hospitals, nursing homes, and medical office buildings.
Mortgage REITs invest in mortgages and mortgage-backed securities, rather than in physical properties. They generate income from the interest paid on these assets.
Office REITs focus on office buildings and generate income from rent paid by tenants.
Residential REITs are companies that own, operate, or finance residential properties such as apartments and single-family homes.
These REITs focus on properties such as shopping centers, malls, and other retail-oriented real estate.
10 Best REITS to Invest in for Reliable Income in 2023
If you're looking to invest in REITs, here are the best companies to invest in for steady income.
The figures indicated below are as of February 2023.
1. Crown Castle Inc.
Share price: $141.00
Market cap: $61.06 billion
2. EPR Properties
Share price: $42.10
Market cap: $ 3.16 billion
3. Equinix Inc.
Share price: $732.70
Market cap: $67.80 billion
4. Farmland Partners Inc.
Share price: $12.70
Market cap: $693.22 million
5. Getty Realty Corp
Share price: $34.89
Market cap: $1.63 billion
6. GLPI Gaming and Leisure Properties, Inc.
Share price: 53.26
Market cap: $ 13.72 billion
7. IRM Iron Mountain
Share price: 53.04
Market cap: 15.42 billion
8. Realty Income Corp
Share price: 66.23
Market cap: 41.54 billion
9. Simon Property Group Inc.
Share price: $124.41
Market cap: $42.66 billion
10. VICI Properties, Inc.
Share price: $34.48
Market cap: $35.11 Billion
How To Pick The Best REIT Stocks
When picking the best REIT stocks from the stock market, here are some factors to consider:
Look for REITs that own a diverse portfolio of properties across different geographical locations and property types, as this can help spread out risk and minimize the impact of any one property underperforming.
Evaluate the REIT's financial performance, including its revenue growth, operating margins, and dividends. You should also look at the REIT's balance sheet to assess its financial strength and stability.
High occupancy rates are a sign that the REIT's properties are in demand and generating steady rental income.
Consider the overall real estate market trends and the REIT's ability to adapt to changing market conditions.
The quality of a REIT's management can greatly impact its performance. Look for REITs with experienced and knowledgeable management teams that have a proven track record of success.
Compare the REIT's stock price to its earnings and assets to determine if it is overvalued or undervalued.
Keep in mind the current market conditions and economic trends, as they can greatly impact REIT performance.
Pros of Investing in REITs
Investing in REITs can offer several benefits such as:
Investing in REITs can provide diversification to your investment portfolio, as they offer exposure to the real estate market, which can perform differently from other asset classes like stocks and bonds.
Potential for steady income
REITs typically generate income through rental income and are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. When they pay safe dividends, investors can be able to have an additional steady source of income.
REITs are managed by professional real estate managers who are responsible for finding and acquiring properties, managing the properties, and optimizing rental income. This can be particularly advantageous for individuals who lack the expertise or resources to directly invest in real estate.
REIT stocks are publicly traded, making it easy to buy and sell shares as needed.
It's important to keep in mind that like all investments, investing in REIT stocks comes with risks and it's important to carefully consider these risks and your investment goals before making a decision. It may also be helpful to consult with a financial advisor for guidance.
Cons of Investing in REITs
Investing in Real Estate Investment Trust (REIT) stocks also has some drawbacks, including:
REITs are subject to the ups and downs of the real estate market, and the value of REIT stocks can be impacted by changes in property values, occupancy rates and rental income.
Interest rate risk
REITs often finance their properties with debt, and rising interest rates can increase their borrowing costs and negatively impact their financial performance.
The quality of a REIT's management can greatly impact its performance, and a poorly managed REIT can underperform and lead to lower returns for investors.
Some REITs may have a portfolio that is heavily concentrated in one specific type of property or in one geographic region, which can make them more vulnerable to market conditions in that specific area.
REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends, but there is no guarantee that these dividends will be sustained in the future, and a REIT may reduce or eliminate its dividends if its financial performance deteriorates.
Investing in REITs: How to Get Started
To get started investing in REITs, you need to open a brokerage account so that you're able to buy and sell REIT stocks that are listed on major stock exchanges.
If you would like to speak to one of our experienced and qualified advisors at Bay Street Capital Holdings, reach out to Ila here.
Bay Street Capital Holdings
Bay Street Capital Holdings is a Black-owned, independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They manage portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility. Although many advisors may focus on maximizing returns, they place a higher priority on managing total risk and volatility.
Our founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2022. In California, Bay Street Capital Holdings is the only Black-owned firm out of the twenty firms that received this recognition.
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In 2021, Bay Street was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).