Real Estate Investment Trusts (REITs)
Risks
REITs are subject to market and economic risks. Factors such as interest rate changes, economic downturns, and property market fluctuations can impact their performance.
Performance metrics
Key metrics for evaluating REITs include Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO), which provide insights into a REIT's operating performance.
Income generation
REITs are required by law to distribute a significant portion of their earnings as dividends to shareholders. This can make them attractive to income-seeking investors.
Liquidity
REIT shares are traded on stock exchanges, providing liquidity that direct real estate investments may lack. Investors can buy and sell shares easily.
Tax advantages
REITs often enjoy tax benefits, as they are exempt from corporate income tax at the federal level if they distribute at least 90% of their taxable income to shareholders.
Global reach
While REITs originated in the United States, many countries have adopted similar structures, allowing investors to access real estate markets globally.
REIT indexes
There are various REIT indexes that track the performance of the overall REIT market. Examples include the FTSE Nareit Index and the MSCI US REIT Index.
Investors should carefully consider their investment goals, risk tolerance, and market conditions when investing in REITs. It's advisable to research specific REITs, understand their property portfolios, management teams, and financial health before making investment decisions. Additionally, consulting with a financial advisor can provide personalized guidance based on individual circumstances.