Coldwell Banker Residential Brokerage
Diana Gould, GRI, Coldwell Banker Residential Brokerage
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Real Estate Investments: REITs & REMF - Which One Fits Your Needs

by Diana Gould, GRI 09/06/2020

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

Diana Gould, GRI

Diana Gould is truly dedicated to providing exceptional, professional and comprehensive real estate services to her valued clients. She is very astute and highly skilled in the Acquisition and Marketing of Residential and Distinctive Luxury Properties. From Greenwich to Trumbull, Diana’s intimate knowledge of the distinctive communities of Lower Fairfield County is invaluable. In helping her clients to find their dream home or sell their special residence; Diana clearly distinguishes herself with proven results as she brings her client’s real estate dreams to life! As a Global Luxury Specialist, Diana excels at providing insightful, comprehensive guidance and marketing applications that produce results. Due to her extensive background as an CPA, she takes great care to educate and advise their clients with valuable analytical information and an informed and in-depth understanding of the current real estate market. When working with sellers, she implements effective and resourceful marketing strategies that clearly accentuate each property’s specific features. Skillfully taking every measure to position the seller’s property to stand out in the market place, she designs a beautiful presentation that incorporates professional photography, refined staging services and extensive visibility on multiple internet sites. Regardless of the time and effort it takes, when working with buyers, she works tirelessly to identify key opportunities that meet their lifestyle requirements. In serving her clients just newly relocating to the area, she is extremely diligent in seeing that their needs are thoroughly attended to and provides them with an insightful perspective into each community within the region. Diana’s clients trust in her integrity and insight and value her timely guidance and expertise in addressing all aspects of the transaction with professional competence. She is very thorough in providing constant communication about each important detail of the transaction and is always extremely attentive, accessible and responds promptly to her clients. Her attention to detail, consistent follow through and determination to indulge her clients with first class service sets her apart. She always strives to negotiate the best terms for her clients and when met with a tough challenge she is very creative, strategic and skillful in working through the issues. Diana ultimately ensures that each client receives outstanding counsel and exceptional representation in her efforts to accomplish their personal real estate goals. Diana further distinguishes herself with the following designations: Graduate Realtor Institute (GRI) and Certified Relocation Specialist (CRS) and Smart Home Certified.