People entering the workforce today have an unprecedented number of opportunities. This lends a lot of flexibility when deciding on a career path. But this causes a lot of confusion as well. The reason behind this confusion is the various aspects that one needs to career. We, at Totempool, have a career path series that throws light on diverse career options. This piece on “is real estate investment trusts a good career path” is another addition to that ever-growing list.
If you want to jump ahead on the topics of the article, here is the table of summary:
- What Are Real Estate Investment Trusts?
- Types of Real Estate Investment Trusts
- Jobs in Real Estate Investment Trusts
- Assessing Real Estate Investment Trusts
- Advantages of Real Estate Investment Trusts
- Disadvantages of Real Estate Investment Funds
- Is Real Estate Investment Trusts A Good Career Path?
So, without much further ado, let us dive right in.
What Are Real Estate Investment Trusts?
Real estate investment trusts are instruments that allow a person to hold a portion of residential or commercial leases in their diversified portfolios. These are companies that or own, operate or finance income-generating real estate.
Real estate investment trusts are funds or securities that invest in income-generating real estate.
Also, it is essential to note that the investors put their money into diverse projects such as hospitals, schools, warehouses, and hotels. These investment trusts receive tax concessions from the government and can promise better returns for the investors.
What Are The Requirements For Managing a Real Estate Investment Trust?
Real estate investment trusts allow both big and small investors to invest and acquire ownership of real estate ventures. They are similar to mutual funds in this manner.
However, rules and regulations ensure that these funds offer investment opportunities and a substantial income vehicle.
Here are a few rules one must know before looking to make a career in real estate.
- Real estate investment trusts must have at least 100 shareholders. Also, no single person should hold more than 50% of the shares.
- At least 90% of their taxable income must be paid as dividends to the shareholders.
- A minimum of 75% of their gross income must be obtained from real estate investments such as rents or sales.
- No less than 75% of their assets must be invested in real estate, cash, or treasuries.
- A board of directors or trustees must manage real estate investment trusts.
- The real estate investment trust must be a taxable entity.
Types of Real Estate Investment Trusts
Before deciding whether real estate investment trusts are a good career path – let us look at the various types of real estate investment trusts.
Firstly there are equity real estate investment trusts. Here you invest in the purchase and management of income-generating properties. The income comes from rent from leasing office spaces, warehouses, office spaces, and hotels. Subsequently, this income is distributed as dividends amongst the shareholders.
Given below are some details of different types of real estate investment trusts.
Retail Real Estate Investment Trusts
These are investment trusts that own and manage retail properties in shopping and business districts amongst other upmarket areas. Here boutiques or grocery stores are set up after the space is leased out.
Investors earn good returns as these properties only increase in value over time. One must hire an experienced team of real estate managers to manage these properties.
However, one should remember that the primary source of income for these trusts is the rent that they charge tenants. A new tenant has to be found if the retailer cannot pay the rent due to poor sales. Therefore, making safe bets such as grocery or home improvement stores is essential.
Residential Real Estate Investment Trusts
This investment trust holds and operates rental properties.
Additionally, they operate in manufactured housing as well. These trusts generate good returns over a period of time. But they come with their own set of risks, such as housing market risk, financing risk, oversupply risk, and interest rate risk.
Residential real estate investment trusts tend to focus on large urban areas. This is because they perform well when the supply in the market is low and the demand is on the rise.
Healthcare Real Estate Investment Trusts
These investment trusts put their money in properties such as surgery centers, assisted living centers, and hospitals. These investments are ideal for long-term growth.
However, the growth of these investments is dependent on the funding of healthcare and the occupancy rate of the facilities.
Office Real Estate Investment Trusts
The best part about office real estate investment trusts is that they do not have many downsides.
Due to this, office investment trusts are a steady source of income, and it is better to hold such investments in office hubs. Here the tenants usually sign long-term leases. The return of these investments is related to the state of the economy, unemployment, and vacancy rates.
Mortgage Real Estate Investment Trusts
These trusts lend money to real estate owners or buy existing mortgage-backed securities. Here the income is the difference between the interest one earns on these mortgage loans and the cost of funding the loans.
Analysts and investors regularly review and monitor the financial statements of these trusts.
Hybrid Real Estate Investment Trusts
This is a combination of equity and mortgage real estate investment trusts. Investment is made both in properties and mortgages, and loans are extended to real estate investors for this purpose.
So the dividends are earned from rental income, capital gains, and mortgage interest. Based on ownership, real estate investment trusts are classified as:
Publicly Traded Real Estate Investment Trusts
The US Securities and Exchange Commission (SEC) regulates publicly traded real estate investment trusts. These are listed on a national securities exchange. Individual investors buy and sell the shares here.
Public Non-Traded Real Estate Investment Trusts
These investment trusts also come under the purview of the SEC. However, they are not traded on national securities exchanges, making them less liquid than their publicly traded counterparts. But this also gives them high stability as they are safe from market fluctuations.
Private Real Estate Investment Trusts
These are only sold to institutional investors. Also, they are not traded on national securities exchanges, and the SEC does not monitor them. All real estate investment funds operate under the same rules regardless of their type.
Jobs in Real Estate Investment Trusts
We now know what real estate investment trusts are and the different types of trusts. So it is time to progress to the most critical section of the article: various kinds of jobs available in real estate investments.
Read below to understand the positions and salaries attached to the same in the concerned field.
A property manager is a coveted position in the world of real estate investment trusts. Property managers are responsible for handling the day-to-day operations of individual properties.
Additionally, they know the customer service advantages and use them for business growth. This is a high-paying job. Moreover, it is ideal for starting a real estate investment trusts career. A property manager makes anywhere between $55,000 to $85,000 a year.
This is the team that is responsible for building the entire project. Also, this role contains a large amount of fieldwork. A group of contractors and subcontractors works on developing and financing the project. Additionally, extensive knowledge of
Real Estate Agent
A real estate agent works with the property owner and the person looking to purchase the property, and he is essentially the middleman between the seller and the buyer. A real estate agent makes $68,000 a year.
An asset manager handles the operational and financial performance of the portfolio assets. All real estate investment trusts usually appoint an asset manager, and he looks after the complete asset management for the company president. An asset manager makes close to $80,000 a year.
The acquirement team locates new avenues for investments. This is a role that calls for expertise in multiple fields. An ideal candidate in this field possesses knowledge in capital markets, finance, and marketing. An acquirer earns about $52,000 a year.
Now the answer to “Is real estate investment trusts a good career path” will become more apparent as one is aware of the possibilities in this sector.
Assessing Real Estate Investment Trusts
Before deciding on a real estate investment trust, there are a few factors to bear in mind. Read below.
- One must look for real estate investment trusts that provide moderate long-term capital and high dividend yields, and this is because these funds are generally actual total-return investments.
- Analyze the funds from operations (FFO) of a real estate investment trust. This is done as depreciation overstates an investment’s decline in property value.
- Invest in established companies as they have management teams with a lot of experience.
- Only consider real estate investment trusts that have excellent properties and tenants.
- Buy a mutual fund or ETF that invests in real estate investment trusts. This way, one can save time on the research.
Advantages of Real Estate Investment Trusts
The benefits of real estate investment trusts are:
- Liquidity: The shares of real estate investment trusts are easily bought and sold in the market. Hence real estate investment funds do not tie up cash flow. In this way, real estate investment funds overcome the traditional disadvantages of real estate.
- Transparency: Real estate investment funds listed on major stock exchanges operate under the same rules and regulations as other shares for reporting and regulatory purposes. This leads to a very high level of transparency.
- Performance: As real estate properties, especially commercial ones, appreciate in the long term, these investment funds have typically proven to be good performers.
- Dividends: These investment trusts are usually a good source of stable income. This 90% of the profits come back to the investors.
- Diversification: Real estate investment trusts have a minimal correlation to other asset classes’ performance, which is an advantage when stocks are down. Additionally, real estate investment trusts outperform other investments regarding dividends.
Disadvantages of Real Estate Investment Funds
Like other investments, real estate investment trusts have some disadvantages. Investors must be aware of these drawbacks before arriving at a decision.
- Slow Growth: One can invest only 10% of the income back into the business, and thus the high dividends are a double-edged sword.
- Higher Taxes: The taxes on the dividend earned are equivalent to the taxes on the regular income.
- Management Fees: Exorbhitant fee is common in most real estate investment funds.
- Lack of control: Investors have no say in the operational decisions. This includes aspects such as the ownership of property and the strategies applied to market trading.
- Investment Risks: There exists a significant risk while investing in these trust funds. This is due to various factors that affect the real estate market, namely property valuation, interest rates, debt, geography, and tax laws. Thus one must be cautious and diligent while investing.
In Summary: Is Real Estate Investment Trusts A Good Career Path?
However, one must know that real estate investment trusts are not a shortcut to tremendous riches, and it is easy to enter the industry. Also, a career in real estate investment is ideal if a person has an inclination towards real estate investing but does not want the pressure of owning it himself.
Like other investments, time and the power of compounding generate a substantial income here. If one wishes to have more direct involvement with real estate investment trusts, there are other opportunities.
Typically an individual will be a part of a much larger team. However, this will materialize only after proper education and experience.
Therefore a person has to decide on the real estate area to specialize in. So now you know whether it’s the career for you or not, you can always take that next step! One thing is for sure, real estate investment trusts are a promising career path, and this is because one will be helping others to craft a lucrative career as well.
If you want to know more about other career paths, check this list on Totempool. You will be able to make your choices with solid information before moving to a particular industry:
- Non-durable consumer goods
- Oil and gas
- Business services
- Commercial banking
- Capital goods
- Basic industries
- Health Care
If you want to learn how to choose your career path, check this article.