Why REITs Should Be a Core Piece of Your Investing Strategy
June 7, 2022 | Sachin Jhangiani | Global Banking & Finance Review
The latest figures show inflation at 8.5%, the highest number since 1981. Today’s young investor has not been exposed to market volatility of this magnitude, which makes short-term wins tempting and long-term strategy out of sight and out of mind.
While flashy tech stocks seem to steal the spotlight, the fund home to Roku, Twitter, DraftKings, and Palantir declined by 24% in 2021. Zoom lost nearly half of its value, and Peloton plunged more than 75%. Real estate was the second-best performing S&P sector in 2021 at 42%.
There is a clear opportunity and need for the modern investor to utilize today’s innovative wealth technology to hedge against inflation and generate real wealth.
Real estate investing can take many forms, but the kind that can bear fruit and offer real potential for today’s average investor are Real Estate Investment Trusts (REITs).
Getting Started with REITs is Affordable and Low Risk
The global wealth tech sector is expected to grow from $54.62 million to $137.44 million by 2028, with more people seeking ways to diversify and add to their nest eggs.
Real estate is becoming more accessible in our tech-centric lives, offering viable methods to earn wealth without the hassles of physical maintenance or sole property ownership. Investors get the perks of wealth generation without taking on the burdens of being a commercial landlord.
Micro-investing has grown exponentially in the past few years, and investors are seeing those trends with new support for the sector to support wealth generation for today’s investors. To offer an example, for as little as $100, an investor can have a fractional stake in a strong private REIT portfolio with dividend returns.
One reason for this shift to wealth tech and micro-investing is real estate’s historic inaccessibility. Real estate investing was exclusively reserved for wealthy individuals, allowing them to build and sustain their wealth over time. Average investors have had little to no opportunity to buy in to these types of offerings. Thankfully, advancement in personal finance technology is bridging that gap. With a large percentage of people lacking income-producing real estate in their portfolios, wealth tech provides an easy, tangible way for the everyday investor to buy into a portfolio of high-yield, sustainable real estate assets that can compound over time.
However, even with these new opportunities for access, most young investors are still navigating how and where to invest. On top of that, the gamification of investing makes accessibility a double-edged sword. It’s a great way to bring more people into opportunities, but not all options may be fruitful or the right fit. In the case of real estate investing, REITs come in many forms and not all of them have the same performance record.
The Core Benefits of REITs in Today’s Market
REITs have more than doubled the return of the S&P 500 in the past couple of years. Even with this impressive track record and new opportunities for access, most young investors are still navigating how REITs work and which are the best to pursue.
REITs can be publicly traded or non-traded. Publicly traded REITs are on the stock market, and one would invest in them in the same way one would invest in a stock or an ETF. They are identified by a ticker and any investor may access them through their Robinhood account or similar. Historically, non-traded REITs could not be accessed by the average investor. They are not listed on the stock exchange and most investors use a financial advisor or a broker to make their investments. Innovative platforms like Elevate.Money have bridged technology with the everyday investor to offer the perks of a non-traded REIT with the modern investor, offering what many new-age investor platforms lack – a long-term solution that has real compounding growth opportunity.
Historically, private REITs are not subject to the same market volatility as public REITs. They also provide portfolio diversification and potentially protect valuable retirement funds with another hedge against inflation. While many investors are choosing to invest in riskier alternatives such as crypto and Bitcoin, real estate is an excellent option in a high inflation market as it is backed by a hard asset.
REITs offer the opportunity for passive income, with 90% of taxable income paid out via dividends to investors. As mentioned, not all REITs are created or designed in the same way, but those that are backed by established long-term leases with well-known names are the play over development promises. The opportunity for income varies depending on a portfolio’s annual dividend yield and what an investor chooses to invest. With a bit of simple math, it’s something that can be planned and calculated.
In the same way an investor would look for successful industries in the stock market, that method is true for real estate. Right now, underperforming REITs mirror underperforming areas in real estate, such as malls. Not all REITs are designed in the same way, and each has its own strategy. Private REITs that have single tenant net leases in their holdings are ideal opportunities for investment growth and win out over a potential development that does not have an established foundation. Look for a portfolio and properties that are within a stable sector and have long-term leases.
Seek out real estate investing opportunities that provide ongoing education to investors. If you don’t understand what you are investing in, it’s harder to track your initial investment and visualize your progress. Work with teams that are transparent, provide materials on their properties and keep investors consistently informed.
