Is it worth investing in Reits ETFs or buy individual Reits?

If I’m willing to invest effort in understanding my REIT, then I’ll buy individual REITs.

Are you buying individual REITs now?

Hi,

Both REIT ETFs and individual REITs have their own advantages and benefits, I'd still recommend, you go with individual REITs for starters. Here's why:

1. High Yield – This is a big one! As REITs are required to pay out most of their taxable income to shareholders they offer a high stable dividend yield. Dividend yields vary depending on the type of REIT and geography but typically they yield anywhere between 4% to 8% (paid out quarterly or semi-annually).
2. Hassle Free – REITs provide an easy means for the average investor to access a sometimes unaffordable property market (e.g. commercial real estate), either via an exchange or over the counter like a mutual fund. In comparison, buying and selling the property directly involves higher expenses and more headache with administrative tasks. When investing in REIT there are professional managers who deal with all of these.
3. Diversification – REIT returns have shown a relatively low correlation to equity stocks and fixed-income investments, which makes it a good portfolio diversifier. When most stocks are overvalued, this is the time you want more of your portfolio to be in bonds and REITs instead of stocks. REIT share prices are also less volatile than equity stocks. This is because rental income and expenses are predictable over the short and long term.
4. Total Return – In addition to income, REIT returns also capture the price appreciation of the underlying REIT properties. Hence it is a good hybrid between dividend income and growth in the stock price. With property generally having a high return potential, REITs over a period of time have shown strong returns and have outperformed the stock index. In 2019 alone REITs have rallied by ~15%, outperforming the S&P 500 index.
5. Tax Advantage – REITs are not taxed on the corporate level as long as they pass most of their earnings directly to shareholders. However, investors do need to pay taxes on dividend income and capital gains from sales of the REITs.
6. Affordability: Investing in a large asset such as a shopping mall or office/institution might not always be an affordable bid. Also, investors will always be wary of the risks involved in investing all their money in one asset. But by investing in a REIT, they get to put their money in a pool of similar such assets but in smaller amounts. This will also dilute the risk of losing all the money lest the market observes a fall.

Hope this helps!

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