Is Real Estate Investment Trusts a Good Career Path?

Working for a real estate investment trust (REIT) can be a good option if you’re considering a career in investing or in the real estate industry. There are several employment choices in the real estate market, and REITs handle funds or securities in that sector.

Your decision regarding the best career route for you can be influenced by your understanding of the fundamental advantages and employment possibilities offered by real estate investing.

In this review, we are going to take a deeper look into what real estate investment trusts are, the different types, the available career opportunities in that field, and the advantages and disadvantages of this career path in order to determine whether it is the best option for you.

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What are Real Estate Investment trusts (REITS)?

A real estate investment trust (REIT) is a form of financial tool that owns and manages income-producing real estate assets like apartment complexes, retail stores, and office buildings.

By combining funds from various investors, REITs make real estate investments widely accessible. This is accomplished by enabling cash to be promptly and effectively used for significant real estate transactions.

REITs can be bought or sold using any conventional way, just like stocks, which trade on stock exchanges. The fact that dividends are paid to investors by REITs is the best feature!

The Internal Revenue Service (IRS) has mandated that REITs must distribute at least 90% of their taxable income as dividends in order to attract investors who value dividends.

Furthermore, these businesses are exempt from paying corporate income tax. They are subject to SEC regulation just like any publicly listed stock. Profits are distributed to the investors when income is made from these invested assets.

Prior to being permitted to conduct business as a firm, REITs must fulfill a number of special requirements. They include:

• Invest at least 75% of its assets in real estate and US Treasury securities.
• Generate at least 75% of its gross income through mortgage interest, real estate sales, or rent.
• Each fiscal year, distribute shareholder dividends equal to at least 90% of its taxable income.
• Must be a corporation subject to tax.
• Must be run by a board of directors or trustees.
• Should have after the first year of business at least 100 stockholders or more.
• Should have no more than five people owning more than 50% of its shares.

It is important to note that Cardone Capital by popular real estate investor Grant Cardone is not a REIT because it does not meet these requirements. Instead, it is a real estate crowdfunding platform.

Before making more investments to expand the business, companies must first transfer the majority of their income to shareholders.

This is accomplished by investing in modest properties with low dividends, which are later merged with other purchases to produce larger income-producing assets.

A REIT’s properties are typically managed and maintained by seasoned asset managers, not the investors who buy shares of the REIT. These asset managers are paid a part of the income made from the trust’s holdings in return for their time and knowledge in managing properties profitably.

These trusts date back to the 1960s. But during the past few years, they have significantly increased in popularity. The main goal of a real estate investment trust is to reduce the investors’ responsibility by enabling them to participate in several properties without having to personally manage them.

Types of REITS

Retail REITS

These are investment trusts that hold and operate retail buildings in upscale locations such as business and shopping districts. Here, after the space has been rented out, boutiques or grocery stores are set up.

Since the value of these properties only rises with time, investors make good returns. For the management of these properties, a qualified group of real estate managers must be hired.

However, it’s important to keep in mind that the rent these trusts charge renters serves as their main source of revenue. If the merchant is unable to pay the rent because of weak sales, a new tenant must be found. Making safe bets, such as at supermarkets or home improvement stores, is crucial.

Healthcare REITs

These investment trusts invest in buildings like hospitals, assisted living facilities, and surgery centers. They are the best investments for long-term growth.

However, the expansion of these investments is reliant on the level of healthcare financing and facility occupancy.

Residential REITs

Rental properties are owned and managed by this investment trust.

They also have businesses in constructed houses. Over time, these trusts produce positive returns. However, they also carry a unique set of hazards, including those related to the housing market, financing, oversupply, and interest rates.

Large urban regions are typically the focus of residential real estate investment trusts. This is due to the fact that they function well when there is a shortage of products on the market and a rising demand.

Mortgage REITs

These trusts purchase existing mortgage-backed securities or provide loans to property owners. The difference between the interest earned on these mortgage loans and the cost of funding the loans is what is referred to as the income in this situation.

The financial accounts of these trusts are periodically examined and followed by analysts and investors.

Hybrid REITs

The jack-of-all-trades of the real estate investment trusts sector are hybrid REITs. They invest in mortgage loans to earn interest and own real estate properties that generate income, such as workplaces or healthcare facilities. To increase their profit, they both do.

Think of a Hybrid REIT as a company that owns a number of office buildings in thriving cities. Like an Equity REIT, they get rental money from businesses that occupy their facilities. Like a Mortgage REIT, they also lend money to hospitals for expansion plans and charge interest on the money borrowed.

The ability to mix consistent rental income with potentially large returns from mortgage investments—attractive when interest rates are favorable—gives Hybrid REIT companies an interesting edge.

A job in hybrid REITs is a fantastic way to work in the real estate sector in many different capacities. You will gain knowledge of real estate financing and property management, as well as how to evaluate financial documents, a crucial skill in this industry.

Office REITs

The fact that office real estate investment trusts don’t have many drawbacks is their strongest feature.

Office investment trusts are a reliable source of income as a result, and it is preferable to keep such investments in office hubs. Long-term leases are typically signed by the tenants here. The state of the economy, unemployment rates, and vacancy rates all affect the return on these investments.

Publicly traded REITs

Real estate investment trusts that are traded publicly are governed by the US Securities and Exchange Commission (SEC). These have a national securities exchange listing. Here, individual investors purchase and sell shares.

Public non-traded REITs

The SEC is also in charge of these investment trusts. Although they are less liquid than their publicly listed counterparts because they are not traded on national securities exchanges. But since they are protected from market volatility, this also gives them a high level of stability.

Private REITs

Only institutional investors can buy these. The SEC does not oversee them, and they are not traded on national securities markets. As a result, regardless of type, all real estate investment funds adhere to the same rules.

What skills are required in the REIT industry?

The kind of real estate talents and soft skills you require could vary depending on the precise job you choose.

Most REIT career paths require a few fundamental skills, including:

• Financial analysis: Real estate investing often calls for the analysis of financial accounts, the performance of valuations, and the evaluation of potential risks and benefits of various investment opportunities.
• Strategic thinking: Real estate investors have the ability to use strategic thinking to create investment plans that fit their objectives and risk tolerance.
• Negotiation skills: Strong negotiation skills are essential for success in the real estate investing industry because it frequently requires negotiating complicated arrangements with several parties.
• Attention to detail: Due diligence on properties and data analysis are key components of real estate investing, thus paying close attention to detail is frequently essential to avoiding costly errors.

While certain positions in REITs call for particular credentials, many are entry-level positions.

A background in real estate, business, or finance is advantageous for the majority of professions. So, a recent college graduate with a bachelor’s degree in one of these fields would be well-positioned to begin a career in REITs.

Job opportunities available in the REIT industry

Property Manager

The day-to-day management of individual properties owned by a REIT is the responsibility of property managers. While some property managers manage a portfolio of several properties, others deal with just one.

These professionals manage the leasing, gather rent payments, enforce lease terms, handle evictions, assure correct upkeep, and perform all other duties related to managing real estate that generates income.

They hire suppliers to execute services not handled by internal staff and supervise employees who are in charge of specialized tasks (like leasing or groundskeeping). Property managers often make roughly $60,000 a year in salary.

Asset manager

REIT asset managers prioritize improving financial performance and ensuring adherence to applicable regulations above managing day-to-day operations directly.

Since there are additional laws for REITs in addition to the SEC and Sarbanes-Oxley Act (SOX) rules that are applicable to all publicly traded companies, the compliance side of this position can be fairly difficult.

A select group of properties from the company’s portfolio are given to each asset manager, who is in charge of managing them, by some REITs’ executive-level asset managers.

Typically, a bachelor’s degree in business or finance is required for these positions. REIT asset managers receive an annual salary of about $84,000 on average.

Acquisitions Manager

Acquisitions managers for REITs concentrate mostly on finding new opportunities for the business to expand its portfolio.

They locate and assess properties that are up for sale and search for locations suitable for new construction that could expand the company’s portfolio. They deal with the different procedures involved in concluding real estate transactions as well as negotiating the purchasing of properties. They might also help sell homes that the business is trying to sell off of its portfolio.

These positions typically call for a business degree as well as experience in large-scale real estate developments. Property acquisitions managers often earn roughly $120,000 annually.

Financial Analysts

Financial analysts who deal with REITs must have a thorough understanding of real estate markets, laws, and financial issues that affect the value of assets.

They concentrate on assisting the businesses they work for in making informed decisions about the acquisition and sale of real estate to optimize investment returns. They frequently perform cost-benefit studies to see whether any changes the business is considering, such as property renovations, are financially sound.

A high level of financial competence is required for this position, as well as at least a bachelor’s degree in a related discipline and/or an MBA. Financial analysts for REITs typically earn over $100,000 annually.

Investor relations associate

Employees of REITs frequently prioritize enhancing relationships with investors while also adhering to reporting standards. Associates in investor relations are in charge of shareholder communications for REITs.

They create the required investor disclosure materials, such as the annual report that must be delivered to investors and the proxy statement that must be sent to investors. They may help with SEC filings and prepare the annual meeting.

Writing and communication skills, financial knowledge, and familiarity with SEC and SOX rules are all necessary for this position. A degree in business, public relations, or a similar subject is typically necessary for this kind of position. Roles in investor relations typically earn roughly $47,000 annually.

Investment banker

Investment bankers give clients who want to invest in the REIT industry financial assistance. Investment bankers for REITs specialize in assisting these entities with capital raising and tricky business dealings.

They are in charge of doing market research and analysis, as well as advising REITs on the best ways to organize income generating real estate investments, debt issues, mergers, and acquisitions. In order to maintain compliance with relevant regulations, REIT investment bankers must also evaluate the legal and regulatory environment of potential strategic changes.

Finally, in order to find additional capital for customers, REIT investment bankers must be skilled at forging connections with potential investors. $177,000 is their average annual salary.

Portfolio managers

Portfolio managers choose which properties to buy, sell, and allocate funds among a portfolio of real estate investments. A portfolio of real estate investments is managed by a REIT portfolio manager.

In order to find potential investment opportunities and do research on those chances, they must also evaluate the present market conditions. The portfolio manager is also responsible for managing the finances, budgeting, and tenant relations of any real estate property owned by their clients. $144,000 is the average salary.

Real estate agent

A real estate agent serves as the intermediary between the seller and the buyer, working with both the property owner and the potential buyer. A real estate agent earns $68,000 annually.

Benefits of REITs

Liquidity

Real estate investment trust shares are simple to buy and sell on the open market. Real estate investment funds don’t stifle cash flow as a result. Real estate investment funds are able to get past some of the typical limitations of real estate in this way.

Transparency

Investors have access to all REIT-related information, so the entire process is open and transparent. The majority of stock exchanges list REITs, and they adhere to the same reporting and regulatory requirements.

Diversification

Real estate investment trusts complement mutual funds, bonds, equities, and other investments in a portfolio quite well. Unlike traditional properties, which are time-consuming and expensive, the REIT has no baggage. They are also simple to manage.

Performance

These investment funds have historically performed well because real estate, especially commercial real estate, increases in value over time.

Dividends

REITs provide respectable dividend returns on their investments. It returns 90% of the profits to the investors within a predetermined time frame. The income is reliable, consistent, and steady-going.

Professional management

Your investment in REITs is managed by professionals, experts, and advisors in real estate. This implies you won’t have to deal with managing or searching for leases, maintenance charges, etc.

Tax benefits

A low 20% tax rate applies to the REIT returns you get. Therefore, if you fall within the 30% tax bracket, you can save the additional 10% of tax.

Drawbacks of REITs

Lack of control

Investors are not involved in the decision-making process. It covers things like tactics created for trading on the market and owning property.

Operation is at a net loss

REITs operate with substantial amounts of debt, as they use debt to finance expansion. As a result of the enormous debt they must pay off each month, the majority of REITs operate at a net loss.

It shows that even if you can make significant profits from real estate, these businesses cannot pay you dividends because all of their income is used to pay off debt.

Market fluctuations

Current market conditions have a significant impact on the real estate market as a whole. Low-performing businesses with weaker employee compensation may result from unfavorable economic conditions.

Frequently Asked Questions

What is the difference between REITs and syndications

Although a syndication and a REIT have important differences, they are similar types of investments. The size of the initial investment is the most notable variation.

Similar to REITs, syndications occur when investors pool their funds to invest in a single real estate project. A syndication, on the other hand, often has significantly fewer investors, a much larger minimum investment, and the shares are much less liquid.

A syndication often requires a minimum investment of at least $25,000, and once shares are bought, they cannot be readily sold if an investor wants to withdraw.

Additionally, syndication investors need to be accredited, which implies they need to fulfill certain investing criteria. Typically, one must have a net worth of at least $1,000,000, not including the equity in their primary residence.

On the other hand, anyone with a brokerage account can buy and sell shares of REITs on the stock exchange every day. Thanks to REITs, everyone may start investing in real estate for as little as a few hundred dollars, if not even less.

Why do investors prefer REITs?

REITs are fantastic for regular investors because they make real estate investing more accessible, but they must also go by certain rules and guidelines in order to distribute their gains as dividends to their shareholders.

The law requires REITs to pay out dividends to shareholders in the amount of 90% or more of their taxable income. As a result, REITs are frequently regarded as among the asset types that offer the highest yields, particularly in times of recession or other financial difficulty.

Conclusion

In conclusion, a career in real estate investment trusts can provide a variety of advantages, including competitive pay, a wide range of employment options, and a high level of professional satisfaction.

In addition to the employment opportunities offered by REITs and other related businesses in the real estate sector, investment in these businesses is attractive due to the potential returns it could yield. Additionally, even though certain REITs are more reliable than others, the majority of businesses have increased dividends for more than 25 years, indicating their success and reliability.

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