For most people who are homeowners, their home is not only the place to hang their hat, potentially raise a family, and proudly make improvements–it also represents a substantial part of their assets, and perhaps their retirement. Unlike other forms of investment, like stocks and bank accounts, property is not easily diversified. Essentially, all of your eggs are in one basket, at one location, and if the local economy tanks or someone builds a new power plant nearby and the value of your home decreases, there is not a lot a homeowner can do to protect their investment. This is where Real Estate Investment Trusts (REIT’s) come in.
An REIT is a company that invests in real estate and allows people to invest in real estate portfolios through the purchase of stock, which allows people to diversify their real estate assets without financing or investing in actual property. Modeled after mutual funds, shareholders are paid all of the REIT’s taxable income as dividends, for which the shareholders pay income tax. REIT’s can be found on major stock exchanges, but there are also some privates and public ones that are not listed.
Of course, no investment is free of risk. REIT stock value can fall, just like any other stock. The idea is to diversify, which means putting your eggs in multiple baskets. Instead of having all of your real estate assets tied up in one property, your home, you can essentially invest in other properties, which are subject to different markets and neighborhood conditions. That way, if the value of your home decreases, you still have money invested in other markets which are increasing.
Want more information about REIT’s? Visit these websites:
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