Should you invest in real estate investment trusts?
By Deborah Jeanne Sergeant
Real estate investment trusts are businesses that own and possibly operate real estate for rent or lease or hold mortgages. Investors outside of these businesses can buy shares of a REIT, typically on conventional stock exchanges. People will always need to rent or buy real estate, which makes investing in a REIT seem like a safe way to invest. However, REITs also have a few drawbacks.
Randy Zeigler, certified financial planner and private wealth adviser in Oswego with Ameriprise, offered a few pros and cons of investing in REITs:
Pros:
• “REITs can diversify an already well-developed stock and bond portfolio by adding commercial real estate positions.
• “Commercial real estate has historically provided solid inflation hedging capability over time.
• “There are several sectors within the real estate marketplace (i.e. office buildings, multi-family housing, malls, strip-plazas, health-oriented research, warehouse and logistics, etc.), so investors can choose the specific sectors that interest them or best fit their portfolio structure and risk level.
• “Income-oriented REITs often pay quarterly dividends.
• “Growth-oriented real estate portfolios may not pay regular dividends but may generate shareholder growth over time.
• “There are traded and non-traded REITs. Investing in early-stage, non-traded REIT portfolios may provide the opportunity to participate in the initial development of the portfolio but often carry greater risks as the portfolio is not fully specified, so the investor may know the real estate sector but not the exact properties into which the portfolio will be invested.”
Cons:
• “Real estate properties are long-term investments by design and the closing costs are expensive so it usually pays to plan for long-term investing with these types of assets.
• “Equity assets usually do not carry any return guarantees and investors can lose principal with equity assets.
• “Traded REITs are individual stock positions which will fluctuate in value, often on a daily basis, but they are typically liquid investments.
• “Non-traded REITs are often illiquid until the real estate sponsor decides to sell the portfolio assets, unless they have a shareholder redemption program in place.”
Dave Treichler, chartered financial planner and financial adviser with Arabella Wealth Advisors in Syracuse, also offered a few pros and cons:
Pros:
• “REITs can be a good way to diversify your portfolio.
• “REIT exposure for people using index funds in 2025 is already approximately 2.71% in the S&P 500, S&P Mid Cap 400 10.88, S&P Small Cap 600 7.78.
• “REITs should be considered long-term investments. There are a variety of REIT mutual funds and REITs trading daily.
Cons:
• “Interval funds, while less liquidity (generally offering quarterly liquidity), but can offer possible higher distribution rates. Non publicly traded REITs, many have no upfront commission, but do have a surrender schedule, some waive the surrender fee upon death or disability. Higher distribution rate means even less liquidity.
• “Both interval funds and non-publicly traded REITs may be subject to accredited investor rules and regulations or income and asset minimum requirements.”
A trusted, qualified financial adviser can help guide decisions about investing based upon your individual circumstances, stage in life and financial goals.
