Risk, returns & timeframes illustration
1 min read
April 21, 2022
by

Safe as, erm, houses?

Schlepping around open homes in socks isn’t the only way to own property. 🏡 With REITs, investors own a slice of the companies that own and operate real estate. Time for a new rung on the property ladder? 🏨
Risk, returns & timeframes illustration
1 min read
April 21, 2022
by

Safe as, erm, houses?

Schlepping around open homes in socks isn’t the only way to own property. 🏡 With REITs, investors own a slice of the companies that own and operate real estate. Time for a new rung on the property ladder? 🏨
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It wasn’t just meme stonks and IPOs exploding last year. 💥 Flying below the radar was a scorching performance by Real Estate Investment Trusts, aka REITS. REITs are a vehicle for investing in property without the hassles that come with being a landlord, and they have special rules for how they operate. In the US, REITs must pass on 90% of their profits in the form of dividends, so they suit investors hoping to generate income. But as US real estate prices took off last year, REITs also saw big capital gains with total returns of more than 40%, even outperforming the S&P 500 index. Did inflation help? Historically REITs have been one of the top asset classes in times of inflation. That’s because overtime, rents can usually rise to help offset inflation.

REITs love property probably even more than Kiwi politicians. They range from trusts, like Digital Realty Trust (DLR), which specialises in investing in data centres, to American Tower (AMT), which invests in the land that hosts communications towers, and everything in between. 🗼The world’s largest REIT is ProLogis (PLD), providers of warehouses for companies that need shedloads of floor space, like Amazon, Walmart and DHL. It has a market capitalisation of US$120 billion, about the same size as PayPal (PYPL).

So are REITs ‘safe as houses’? Not necessarily. Rising interest rates can be a challenge for real estate and shares alike. And recently the US Federal Reserve raised warning flags around residential real estate prices, dropping the words 'US housing’ and ‘bubble' in the same sentence. 🚩🚩 🚩 The last time those words were heard together during 2007 to 2009, the Vanguard's REIT fund (VNQ) plunged almost 65%, from a high of US$65 to a low of US$23, before steadily bouncing back.

We’re not financial advisors and Hatch news is for your information only. However dazzling our writing, none of it is a recommendation to invest in any of the companies or funds mentioned. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. We’ve done our best to ensure all information is current when we pushed ‘publish’ on this article. And of course, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.

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