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A real estate investment trust (REIT) is basically a company that owns, operates, or finances income-generating real estate. REITs are somewhat modeled after mutual funds. Scott Tominaga mentions that REITs tend to pool capital investors who earn dividends from real estate investments. These investors do not buy manage, or finance any properties individually. Several REITs are publicly traded on major securities exchanges, and investors can buy and sell them like stocks throughout the trading session.

Scott Tominaga marks a few of the major benefits of investing in Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) was established by the congress in 1960, as an amendment to the Cigar Excise Tax Extension. The provision enabled investors to purchase shares in commercial real estate portfolios, which were previously available only to wealthy individuals and through large financial intermediaries. While REITs specialize in a specific real estate sector, diversified and specialty REITs may hold different types of properties in their portfolios.

The benefits of investing in investing in Real Estate Investment Trusts are many, including:

·         Liquidity: Liquidity is among the prime reasons why people choose to invest in REITs. As an asset class, real estate is renowned for having a good risk return profile. This basically means that it is able to provide good returns, and have comparatively low risk of downside. However, if it is illiquid, real estate as an asset class has a significant drawback. Investors wanting to cash out on their real estate investments may have to wait for weeks or months to do so. Hence, it is better to invest in REITs instead. Securities sold by REITs are listed on many exchanges, and can be bought and sold like shares of a blue-chip corporation.  Investors putting their money in REITs would enjoy extremely high liquidity.

·         Diversification: REITs provide small ticket real estate investors with the opportunity for diversification. Real estate investments typically require a considerable financial commitment, and hence investors get to invest only in a few places. As a result, they are also exposed to the risks and returns of those micro-markets. All savvy investors would know that putting all eggs in one basket is not a good idea. Therefore, to diversify the risk, it is better to invest in REITs. After all, these trusts own a wide variety of properties, including apartments, condos, retail buildings, offices and more. Hence, they have adequate diversification to protect themselves from the risks a single micro-market may present.

·         Predictability: In comparison to many other types of investments, REITs are fairly predictable.  In fact, as an asset class, real estate has quite a predictable rate of appreciation as well as rates at which rentals grow. Hence, the cash flows from such a fund can be easily predicted with a high level of accuracy and certainty.

As Scott Tominaga says, investors today can find a variety of REITs to invest in. Some REITs may invest exclusively in equity, while certain others may also offer a debt-based investment opportunity. Buying a combination of debt and equity-based REITs would be a good way to create a robust risk-reward portfolio.