Scott Tominaga: Investing in Real Estate Investment Trusts

A REIT, or real estate investment trust, is a company that holds a portfolio of real estate loans or commercial real estate. It was created in 1960 to allow individuals to invest in income-producing commercial real estate, explains Scott Tominaga. REITs combine the best features of stock investment and real estate.

Properties in a REIT portfolio may include data centers, apartment complexes, healthcare facilities, hotels, infrastructure—in the form of fiber cables, cell towers, and energy pipelines—office buildings, retail centers, self-storage, timberland, and warehouses.

Many REITs are publicly traded on major stock exchanges, and they can be bought and sold like stocks throughout the trading session. These REITs generally trade under substantial volume and are considered very liquid instruments.

Types of REITs

There are three types of REITs. They are classified by access:

Publicly traded REITs are traded on major stock exchanges, such as the Nasdaq Exchange and New York Stock Exchange (NYSE). Anyone with an investment account can invest in a publicly traded REIT, says Scott Tominaga. Publicly traded REITs are registered with the U.S. Securities and Exchange Commission (SEC).

Public non-traded REITs are open to all individuals but don’t trade on stock exchanges. Investors can purchase public non-traded REITs on online portals known as real estate crowdfunding platforms or through their financial advisors. Public non-traded REITs must also register with the SEC and provide audited financial information, notes Scott Tominaga.

Private non-traded REITs aren’t available to retail investors. They’re generally only open to high-net-worth individuals or high-income earners. Private non-traded REITs are exempt from SEC registration, adds Scott Tominaga.

How to buy REITs

Investors have many ways to purchase REITs. The easiest way is to buy shares of publicly traded REITs through a brokerage account, notes Scott Tominaga. An investor could purchase several different REITs to build a diversified portfolio or invest in a diversified REIT. REITs are generally inexpensive to buy, with many trading below $100 a share.

Another way to invest across the REIT sector is to buy an exchange-traded fund (ETF) or mutual fund focused on REITs. REIT mutual funds and REIT ETFs are also easy to buy and inexpensive to purchase, says Scott Tominaga.

Lastly, you can invest in public non-traded REITs through a real estate crowdfunding portal or a financial advisor. That makes it more challenging to purchase. They also generally have higher minimum investments, usually $2,500 to start.

Congress created REITs so that anyone could invest in income-producing real estate. REITs must pay dividends, making them an excellent way to earn passive income. Add in their historical returns and diversification benefits, and REITs can be a great investment option.

Scott Tominaga earned his degree in Business Finance from Arizona State University in 1988. An experienced professional in the hedge fund and financial services industry, his skills involve expertise in middle and back-office, accounting, compliance, and administrative functions within financial services firms. For more articles on finance and investment, visit this blog.