Coldwell Banker Realty
Coldwell Banker Realty
Vilma Graller, Coldwell Banker RealtyPhone: (928) 899-5030
Email: [email protected]

Real Estate Investments: REITs & REMF - Which One Fits Your Needs

by Vilma Graller 07/21/2021

Image by Steve Buissinne from Pixabay

For anyone interested in investment diversification, real estate is one of the preferred holdings in addition to stock and bonds. However, many investors possess neither the cash nor the knowledge and interest to actually buy, sell, rent or manage real property. Such investment involves more than cash; it also requires in-depth market knowledge, and hands-on time, energy and effort.

Investment in a Real Estate Investment Trust (REIT) or a Real Estate Mutual Fund (REMF) are popular alternatives, with specific advantages that are attractive to small investors and to those who seek investment diversity.

Considering an REIT 

While there are three types of Real Estate Investment Trust, Equity REITs are the most common. These entities own and manage revenue-generating property, including shopping malls, office and apartment buildings, hotels and specialty properties. Niche markets today include medical developments, senior and targeted healthcare communities, retirement developments, and multi-use developments, including live-work centers in urban environments.

An REIT may also generate income by purchasing or trading in mortgages and mortgage-backed securities, known as a Mortgage REIT, or through a combination of equity and mortgage holdings, termed a Hybrid REIT. Although shares may be traded publicly or sold privately, an REIT is bound by Internal Revenue Service rules to pay out most of its earnings to its investors. Although an IRS is treated as a corporation and must be managed by a board of directors or a group of trustees, it pays no corporate income tax.

What Are Real Estate Mortgage Funds?

Mutual funds, by definition and practice, pool investment funds to purchase stocks and bonds. Investors purchase shares or units based on the current net asset value (NAV) of the combined assets. Real Estate Mutual Funds invest solely in real estate-related stocks, REITs, or a combination of both. Investing in such a fund offers an investor a low-cost, relatively low-risk option to traditional real estate.

Transaction costs associated with investing in mutual funds are typically minimal, and there is a high probability that the funds will be professionally managed and researched, an advantage for most investors. 

While an REIT only pays dividends, based on the number of shares an investor holds, the REMF carries the expectation of regular dividend payments as well as capital appreciation. 

Because shares of both the REIT and REMF are readily traded, such investments are considered highly liquid, and carry minimal risk. They offer an excellent opportunity for the small or new investor to diversify into the world of real estate, and they are considered by some proponents to be a hedge against inflation. As home values and rental incomes climb, investment dividend payments are likely to increase.

The flip side is that as interest rates rise, corporate costs increase and profitability might be affected.

As with all investments, a decision will depend on personal circumstances, considered judgment, and careful comparison.

About the Author
Author

Vilma Graller

Vilma is an Associate Broker; Accredited Buyer’s Representative, and Graduate of the REALTOR Institute. She also holds a BBA a Bachelor of Business Administration Degree with a minor in Marketing from "The Bernard M. Baruch College, The City University of New York".  Vilma is always at the forefront of real estate's professional and industry standards.  Vilma understands the value of having long term relationships with her clients. Therefore, she continually takes steps to remain highly trained and educated in order to keep you well informed throughout your buying or selling process.

Philosophy:

“To build long-term relationships by serving people with client-centered professionalism, focus and the tenacity to get the job done.  Vilma Graller guarantee’s that the expertise she has gained over the last 20+ years of working in the Prescott area market benefits both sellers and buyers.  A transaction is never more important to Vilma than a client, because I care.”

“Service with experience, knowledge and integrity”