REITs To Buy Now For New Investors: Real estate has been a popular investment over the past two years – especially when it comes to residential properties. Low interest rates on mortgages coupled with a limited supply of homes for sale pushed prices up as buyers entered bidding wars for the most in-demand properties.
Now that interest rates are rising, there are signs that the real estate market is leveling off. That’s good for investors who are just starting out.
Real estate is a smart choice to stabilize portfolio returns in a bear market, and Real Estate Investment Trusts (REITs) make real estate investing accessible to everyone.
What Is A Real Estate Investment Trust (REIT)?
The trouble with traditional real estate is that it takes time to buy and sell – and that’s assuming you have the time and money to purchase and manage income-producing properties. REITs were specifically designed to address both pain points so that real estate investing is as easy and affordable as trading stocks.
Basically, REITs pool investors’ funds and use that cash to purchase and manage income-producing properties. Investors hold shares in the trust much like an exchange-traded fund (ETF), and dividends are paid out to shareholders regularly.
To qualify as an REIT, the fund must meet certain criteria. For example, most of the fund’s assets must be real estate, and the fund must pay out at least 90 percent of its taxable income as shareholder dividends.
Some REITs own a diverse mix of assets, but most choose to specialize in a particular area of the real estate market. Common areas of focus include residential buildings, warehouses, industrial properties, office space, shopping centers, data centers, healthcare facilities, and hotels.
For beginning investors, the big question is which REIT is best. These are three REITs to buy now for new investors.
Is Digital Realty Trust A Good Investment?
The digital transformation upended existing business models and changed how people work, learn, and play. As the use of digital tools expands, there is a demand for more computing power and more digital storage space.
Digital Realty Trust is a leading provider of extra server space. It houses servers in roughly 290 data centers located in strategic spots worldwide. Major clients include AT&T, IBM, JPMorgan Chase, Meta Platforms (Facebook), Oracle, and Verizon.
Digital Realty Trust has a forward-thinking strategy that includes transitioning to renewable energy, meeting the needs of emerging markets, and ensuring it is fully prepared for natural disasters and weather emergencies through the placement of its data centers.
Thanks to careful management, this REIT has successfully grown its free cash flow for the past seven years. Those efforts have made it possible for the Trust to invest in its strategic goals. For example, approximately 40 percent of Digital Realty Trust’s data centers are fully powered by renewable energy, and there are plans to increase that total.
In addition, the Trust recently acquired the South African data center network Teraco. That puts Digital Realty Trust in the right place to be the data center provider of choice for the emerging market on the African continent.
Digital Realty Trust has delivered a 10 percent compound annual growth rate to shareholders since 2005, and all signs point to continued growth as the world continues its transition to digital tools and services. For new investors, Digital Realty Trust offers exposure to high-growth tech without the volatility of tech stocks, which makes this REIT a buy.
What Does Medical Properties Trust Do?
Healthcare is a must-have whether the stock market is up or down. That means medical facilities are a smart choice for real estate investors.
Medical Properties Trust is an REIT that specializes almost entirely in hospitals. Specifically, it purchases the real estate and leases it to hospital companies, most of whom are extremely reliable tenants.
Medical Properties Trust has grown its portfolio of investment properties from a total value of $2 billion to more than $17 billion over the past ten years.
During the same period, revenue increased from $200 million to $1.6 billion. Since 2005, this REIT has outperformed the healthcare REIT market index by more than 300 percent, and it appears poised to continue that success through the next decade and beyond.
Medical Properties Trust had a difficult start to 2022, and share prices dropped nearly 40 percent in value. Now that the trend has started to reverse, it’s an excellent time for new investors to acquire shares at a discounted price.
What Does Prologis Specialize In?
Prologis rounds out the list of REITs for new investors because it is one of the world’s largest, most reliable Trusts.
It specializes in warehouses and has an ownership interest in more than 4,700 industrial properties worldwide.
In most cases, Prologis buildings and industrial campuses are used as distribution centers, warehouses, and last-mile delivery hubs, which puts Prologis in the right place at the right time to benefit from the rapid growth of e-commerce.
Prologis’ total client list has more than 5,800 companies, including big names like Amazon, FedEx, and Walmart. This REIT is able to attract major organizations because it strategically selects locations that ensure clients can reach their customers quickly and easily.
Over the past ten years, Prologis has delivered an annualized return of nearly 18 percent, which is more than the S&P 500.
When the pandemic boosted e-commerce adoption, Prologis saw tremendous demand for its properties, and that demand continues to increase despite the return to pre-pandemic life.
Prologis reported that rents went up by 45.6 percent year-over-year in the second quarter of 2022, and vacancy rates were below three percent for that period.
Prologis is expanding its real estate portfolio. In addition to purchasing properties outright, it is growing through the acquisition of other REITs. For example, Prologis has nearly completed its purchase of Duke Realty, and it has around $1.5 billion earmarked for further acquisitions in 2022.
Are REITs A Good Investment In A Bear Market? The Bottom Line
REITs don’t tend to move in lockstep with the stock market. They have a relatively low correlation, which makes them helpful in diversifying a stock-heavy portfolio. That’s critical in a year when the S&P 500, the Nasdaq, and the Dow Jones Industrial Average have experienced heavy losses.
Though it appears that these markets are beginning to recover, many analysts expect additional periods of volatility ahead. Introducing REITs into a portfolio mitigates some of that volatility and keeps returns steady. That makes REITs a smart choice for new investors.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.