REITs Investments
I'm not a big believer in REITs, but that shouldn't put you off investing in them. My opinions remain such and that is opinions. Neither more nor less.
Let's start with the theory.
REITs are companies that invest in real estate; residential, commercial properties.
They enjoy tax-advantaged status; in this way they can avoid corporate taxes, but are required to pay 90% of their taxable income as dividends.
One of the crucial points is that REITs pay coupons, they do not accumulate value.
So they are not equivalent to an accumulation ETF and the dividends must be reinvested manually (unless you want a passive REIT annuity, of course).
Pros?
REITs are easier to sell and buy than a house, office or land.
The watchword is "liquidity!!
The typical problem of real estate investments is low liquidity.
There are no liquidity issues with REITs because I can sell them immediately during market hours.
I also don't have to bother looking for renters, thinking about maintenance work or other hassles of owning a property.
One of the crucial points is that REITs pay coupons, they do not accumulate value.
So they are not equivalent to an accumulation ETF and the dividends must be reinvested manually (unless you want a passive REIT annuity, of course).
ETF REITs
Typically REITs focus on a market or a category (Office, Industrial, Retail, …) or in a geographical area.
Do you want to diversify to avoid specific risks?
Well then it's time to take ETFs again.
Well, they also invented REIT ETFs, they work the same as classic ETFs. And they solve the problem of what to do with the coupons if you want to reinvest them. Accumulation ETFs and pass the fear.
Why I do not like them?
Although I consider them very interesting tools, they leave me in doubt about 3 things mainly.
The fear of real estate bubbles. Property bubbles can happen more easily as it is difficult to estimate returns on real estate easily. Returns on stocks are based on a company's earnings and position in the market. Properties can lose (or gain) a lot of value in a short time due to sensationalism. A penthouse in a holiday town is only due to tourism. If the trend passes, the value of the accommodation disappears. (In the case of a big city it would already be different because it is based on the work and salaries of citizens. It is difficult for a city to lose its status in a short time)
The risk-reward ratio. Although the volatility of REITs is partially unrelated to that of stocks (0.4-0.6 on average), it still brings higher volatility to the portfolio for a lower return. This causes the 2 effects to largely cancel each other out.
There are high-yield stocks. As mentioned earlier, REITs must distribute 90% of their earnings. This means that little money can be spent on research and/or construction of new infrastructures to be sold/rented. High yield stocks have similar returns, 3% (HYS) vs 4% (REITs), but much lower volatility. Furthermore while you can choose companies that distribute a small part of the earnings. With REITs this is not possible.
Despite my reluctance towards these forms of investment, I advise you in any case to take a look and think for yourself.
Hear all the bells before having your opinion.
Site tips:
Reit.com: in case you want to buy individual REITs
JustETf.com: Classic is always in fashion.