Real Estate
Are REITs an Alternative?
Investing in Real Estate Investment Trusts (REITs) may be an appropriate alternative to investing in individual properties. REITs provide a way for investors to add a more diversified exposure to real estate markets without the costs, risks and management of individual property ownership, and with a low initial investment. PFA often recommends real estate holdings in an investment portfolio in the form of REITs.
REITs come in many different forms, and tend to focus on one specific area in the real estate market. For example, there are REITs that invest in apartments, hotels, commercial real estate, and hospitals. Often the holdings within REITs are even more concentrated in that the properties owned may be located in one specific region or city.
As an alternative, you can invest in mutual funds that invest in REITs and other real estate-related stocks. We usually recommend this type of investment over individual REITs because it tends to provide a broader, more diversified exposure to the real estate sector. Investors in mutual fund REITs receive dividends generated by activities from real estate holdings in the fund portfolio. Daily pricing of REITs enable market liquidity without incurring the cost of large commissions and a multi-week closing process.
As with other mutual funds, PFA recommends REIT mutual funds after reviewing the management of the funds, portfolio holdings, internal operating expenses, and fund history.