By Kenny Elkins, Wealth Manager at Equity Concepts
Back in 2008, the national economy was struck by a recession that caused the U.S. real estate sector to take its biggest hit since the Great Depression. More than 1.2 million homes were foreclosed following the recession, leaving millions homeless and living with relatives and friends. During this same time period, the U.S. apartment vacancy sat at 8 percent, which was the highest in 30 years, hurting landlords and leaving many searching for affordable housing.
Luckily, since then, the housing market has been on the upswing and growing rapidly.
In the United States alone, home sales have risen in the past eight years by 5-6 percent, according to the CoreLogic Home Price Index (HPI). Even internationally, home prices are climbing in major cities such as Vancouver, New York, Sydney, London and Amsterdam. Outside of home sales increasing, though, other properties are seeing growth. Medical buildings, apartments, mall and shopping centers, banks and gas stations are all active markets that are gaining more attention and driving revenue. Many people are surprised to learn that all these different types of properties can be incorporated into their retirement portfolio, subsequently adding diversification and providing high returns. Now that the United States is out of its recession and on the rise, it is no longer just stocks and bonds that are seen in investors’ portfolios.
Right now, there are many opportunities to buy quality real estate at discounted prices. The market has a lot of flexibility, and cities around the nation provide great investment opportunities for those looking to build their portfolio.
The most common instrument used for property investing is a Real Estate Investment Trust (REIT). Created in 1960 by Congress, this tool allows investors to buy fractional shares of large real estate portfolios – individuals do not have to go out and buy commercial real estate themselves.
In addition to the purchasing convenience, there are many benefits to investing in a REIT:
- These trusts can offer investors diversification, liquidity, high yields and transparency.
- REITs have shown investment security since the recession – the trusts have seen positive returns for the past seven years and have continued to thrive well into 2016, outperforming the S&P 500.
- With most REITs, investors can receive a payment of monthly dividends. Investors are paid out a month-to-month even amount, which also reduces volatility.
- A REIT pays 90 percent of its taxable income to its shareholders annually. There are also non-traded REITs and publicly traded REITs.
- REIT investors become property owners and begin collecting rental income checks.
If you’re looking to invest in REITs, though, it’s important to evaluate the potential risks involved. As seen in the 2008 housing market crash, real estate is vulnerable to downturns that can quickly deplete the value of your holdings. Additionally, while some REITs can offer liquidity and transparency, if you’re invested in non-traded REITs you lose these benefits – they are not publicly traded, giving you little information on your investment, and often remain illiquid for years.
However, with the housing boom showing no signs of ending soon, it’s important to consider REITs as potential investments. While most people are familiar with having a retirement account composed of stocks, bonds, mutual funds and CDs, REITs could be the missing piece your portfolio needs.
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About Equity Concepts: Equity Concepts was founded in 1991 as a financial services firm focused on exceptional service. This strategic focus allows Equity Concepts’ clients to gain the most from a relationship with the firm. Equity Concepts provides comprehensive financial services to individuals, families, businesses and institutions. To learn more about Equity Concepts, please visit www.equity-concepts.com, call us at 804-285-4463 or visit our office at 2550 Gaskins Road, Henrico, VA 23238.
Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/ SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and Equity Concepts LLC and are not affiliated.