For those who want exposure to U.S. real estate without the headaches of property management, Real Estate Investment Trusts (REITs) are an excellent alternative. This post weighs the benefits and drawbacks of this liquid investment vehicle.
The Pros of REITs
- Liquidity: Unlike physical property, which can take months to sell, REIT shares can be traded instantly on major stock exchanges.
- Diversification: A single REIT can own hundreds of properties across different geographic regions and sectors (data centers, hospitals, malls).
- Passive Income: By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends.
The Cons of REITs
- Market Volatility: REIT prices are influenced by the broader stock market and interest rate fluctuations.
- Lack of Control: You cannot decide when to buy or sell individual assets within the trust.
- Taxation: For foreign investors, REIT dividends are often subject to a 30% withholding tax, unless reduced by a treaty.
Conclusion
REITs are a powerful tool for diversification. They allow international investors to “own” a piece of the U.S. skyline with just a few hundred dollars.