What are REITs?
REITs or real estate investment trusts are a type of stock offered on the stock market. As the name implies, it is a type of stock that deals primarily with all different types of real estate. There are REITs that invest in primarily commercial real estate buildings like those used by stores like Walmart, as well as for other types of businesses like restaurants, schools, factories, and etc. There are REITs that invest primarily in residential real estate, meaning things like single-family homes, multi-family homes, apartment complexes, and etc. There are REITs that invest in a mix of all different types of real estate.
Pros of investing in REITs!
One of the best things about investing in REITs is that, compared to common stocks, they often end up paying noticeably higher dividends. This is because they are required by law to distribute at least 90% of their profits to their shareholders in dividends. Another benefit of investing in REITs is that they are a type of stock that is noticeably more likely to regularly raise their dividends and more likely to pay out monthly dividends.
This is because regardless of which type of real estate they invest in the business model charges their tenants rent every month or get payments from mortgages. Also, since rents go up over time they also end up raising their dividends more often than regular companies, because like I said before, they are legally required to distribute most of their profits to shareholders in the form of dividends.
Another significant advantage that I already mentioned is REITs are a type of stock that is noticeably more likely to pay out their dividends monthly. This is also thanks to the business model of real estate, where rent is charged monthly. Now, not every REIT in existence actually pays out monthly dividends, unfortunately.
However, some of the bigger, better know REITs that pay out monthly dividends include: TICKER: O (Realty Income Corp), which invests primarily in commercial real estate, TICKER: STAG (STAG Industrial Inc., which invests primarily in commercial real estate, and TICKER: LTC (LTC Properties), that invests primarily in senior housing and healthcare real estate. There are many more than the ones mentioned that pay monthly dividends. You just have to do your own due diligence and research to find them.
Cons of investing in REITs!
Unlike most common companies, REIT dividends are always considered ordinary gains, which means they are basically always taxed at regular income tax rates at the state and federal levels. REITs can be taxed at capital gains tax rates, but this only applies to whenever you sell shares of the actual company after it meets the typical “holding period” of 60 days requirement that applies to regular common stocks too.
Here’s a table for the income tax brackets for ordinary dividends as of 06/2021
|Tax Rate||Singles Tax Bracket||Married filing Jointly Tax Bracket||Heads of Household Tax Bracket|
|10%||$0-9,950||$0-19,900||$0 to $14,200|
|12%||$9,951-40,525||$19,901-81,050||$14,201 to $54,200|
|22%||$40,526-86,375||$81,051-172,750||$54,201 to $86,350|
|24%||$86,376-164,925||$172,751-329,850||$86,351 to $164,900|
|32%||$164,926 to $209,425||$329,851 to $418,850||$164,901 to $209,400|
|35%||$209,426-523,600||$418,851 to $628,300||$209,401 to $523,600|
|37%||$523,601 and greater||$628,301 and more||$523,601 or more|
Here’s a video from Nareit1’s YouTube channel further explaining how REITs works with some nice animations!
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Disclaimer: I am not any sort of investment or financial professional giving any sort of legal advice. I’m just some guy trying to teach other people about how they might navigate the financial world.