Real Estate Stock – Pros and Cons

Real estate stock, aka Real Estate Investment Trusts, or REITs, are an avenue of investment that many people have heard of, but have not taken a good look into. Let's take that look now.

About Real Estate Stock – Understanding REITs

REITs are typically an investment in a property management company. As a real estate stock holder, you fund a property management company that handles real estate assets. Investors earn dividends from the profit generated. For example, a commercial real estate REIT may own a shopping center or strip mall. When you purchase shares of that REIT they are going into building and maintaining that structure. As tenants move in and rent those spaces, and the REIT earns profits, those profits come back to you in the form of dividends. This is also the case for residential real estate interests like housing developments, apartments and condominiums.

Real Estate Stock – Pros and Cons of REITs

Starting with the Pros…

Dividends – Unlike other stocks and mutual funds, REITs come with some very strict rules as to how their profits can be used. As profits come into a REIT, at least 90 percent of that profit must go right back to the shareholders in the form of dividends. That means most REITs always see a nice annual return on the initial investment.

Their Own Entity – If you have noticed, the stock market has an all for one kind of approach to things. Often if one area of the market goes down, the rest follows, hitting you across the board. Real estate stock is different. REITs are not as strongly tied to other investments and stock fluctuations; therefore, they can hold strong even when the rest of the market is on a roller coaster ride.

Solid Starting Platform – If you are not a major investor in general, REITs may be the way to begin your investment portfolio. For the most part they are stable purchases and can be capable of earning a steady profit for years to come.

Constant Investment – Since REITs revolve around property investments, there is always something tangible – a piece of land, homes, apartments or businesses. Typically, these involve long-term leases so there will be income generated from those leases to feed your dividends.

And now the Cons…

There aren't that many bad points to REITs, but here are a few:

Slow Growth - If you are looking for a major growth in your REIT, you likely won't see it. Since only 10% of the money made can be put back into the REIT (as 90% has to be paid out as a dividend) that means there is a lot less going back into the business to make it grow more quickly.

Down Times – Just like any other investment, there is always the chance that a downturn in real estate will cause your REIT to earn lower profits.

Despite these few bad points, real estate stock is worth looking into. Start by going to a full service website like REITBuyer.com. There you can get information about REITS, tools and research help as well as education and advice before you buy. When you're ready to invest in real estate stock, they are also investment real estate brokers who can take care of the entire transaction.