Last week, we explored Structured Notes, a powerful tool for creating tailored investment outcomes. This week, we’re turning our focus to Real Estate Investment Trusts (REITs), a practical and accessible way to invest in real estate without the burdens of property management.

REITs are companies that own, operate, or finance income-producing real estate. By investing in a REIT, you gain exposure to a diverse portfolio of properties—such as office buildings, shopping centers, or apartment complexes—without the significant capital or time required for direct ownership.

One of the most attractive features of REITs is their simplicity. They trade on major stock exchanges, just like traditional stocks, making it easy to buy and sell shares. This liquidity provides flexibility that’s often lacking in direct real estate investments. Additionally, REITs are required to distribute at least 90% of their taxable income to shareholders, making them an excellent option for those seeking consistent income.

Why Consider REITs?

REITs offer several advantages that make them a compelling addition to many portfolios:

  • Diversification: By investing in a REIT, you can gain exposure to a wide range of properties across multiple sectors and locations. This helps spread risk compared to owning a single property.
  • Professional Management: REITs are managed by experts who handle all aspects of property ownership, including acquisition, leasing, and maintenance.
  • Steady Income: With their mandatory dividend distributions, REITs are a popular choice for income-focused investors, particularly retirees.

What to Watch For

While REITs are appealing, it’s essential to understand their potential downsides:

  • Market Volatility: As publicly traded investments, REITs can be subject to market fluctuations, which may impact share prices.
  • Interest Rate Sensitivity: Rising interest rates can lead to higher borrowing costs for REITs, potentially reducing profitability.
  • Tax Considerations: Dividends from REITs are taxed as ordinary income, which may result in a higher tax liability compared to qualified dividends.

Are REITs Right for You?

REITs can be an excellent option for investors who value simplicity, diversification, and steady income. They’re particularly well-suited for those seeking exposure to real estate without the challenges of direct ownership, such as maintenance or tenant management.

Key Takeaways

Real Estate Investment Trusts offer a unique way to participate in the real estate market without the hassle of managing properties yourself. Whether you’re looking for diversification or a reliable income stream, REITs can be a powerful tool in your financial toolkit.

Important Note: If you’re considering a 1031 exchange and were wondering about rolling capital gains into a REIT, it’s important to know that this isn’t allowed under current IRS rules. However, there are alternatives—such as Delaware Statutory Trusts (DSTs)—that allow you to defer taxes while enjoying many benefits similar to REITs. We’ll dive into DSTs in our next edition, so stay tuned!

Warmly,

Jeff Perry

Partner, Quest Commonwealth

Co-Host of “Safe Money Mindset” on WXYZ-TV ABC Detroit

Author of “Safe Money Mindset” – Available on Amazon or DISCOUNTED HERE

👉 Watch our latest TV episodes of “Safe Money Mindset” on YouTube


Weekly Tip

Before making any major retirement decisions, take time to create a detailed income plan. Start by mapping out all potential income sources—like Social Security, pensions, and investment dividends—and compare them to your expected expenses. A clear plan will give you confidence and direction as you move forward. If you’re unsure how to get started, schedule a no-cost consultation to develop a strategy tailored to your needs!

Jeff Perry is an Investment Advisor Representative registered with Foundations Investment Advisors, LLC, an SEC-registered investment adviser. Investments include the risk of loss, including the loss of principal.

January 30, 2025

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