Ahmed Property Case Study

Advantages to Investing in Real Estate Investment Trusts

Diversification

 REITs provide the opportunity for diversification to small ticket real estate investors. Real estate investments require a significant financial commitment on the behalf of the buyer. As such, investors can only invest in a few places. Therefore, they are exposed to the risks and returns of those micro-markets. Anyone familiar with investing knows that putting all your eggs in one basket is a dangerous proposition. This is the reason many people believe that real estate is an extremely risky proposition.
However, Real Estate Investment Trusts provide an opportunity to diversify this risk. This is because these trusts own a wide variety of properties. They own apartments, condos, offices, retail establishment etc and they own these properties in different markets. As such, they have sufficient diversification to protect themselves from the risks any one micro-market may present. This is what has made REITs a preferred choice for many investors.

Liquidity

Liquidity is the foremost reason that anyone would want to invest in REITs. Real estate as an asset class is known to have a good risk return profile. This means that it provides great returns and the risk of downside is not as high when compared to other investments.

However, real estate as an asset class has a significant drawback which is that it is highly illiquid. Investors who want to cash out on their real estate investments have to wait for weeks (if not months) to do so. This is where investing in Real Estate Investment Trusts (REITs) comes to the rescue.

The securities sold by REITs are listed on many exchanges across the world. As such they can be bought and sold like shares of a blue chip corporation! Therefore investors who put their money in Real Estate Investment Trusts (REITs) get the benefit of extremely high liquidity which was virtually unheard of in the real estate market.