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10 Best REITs to Invest in for Reliable Income in 2023

CEO Khai Intela
If you're looking to make investments or expand your portfolio, Real Estate Investment Trusts (REITs) are worth considering. But what exactly are REITs and why are they becoming increasingly popular? In this article, we will...

REIT property plus income statement

If you're looking to make investments or expand your portfolio, Real Estate Investment Trusts (REITs) are worth considering. But what exactly are REITs and why are they becoming increasingly popular?

In this article, we will explore the world of REITs and provide you with all the essential information you need as an investor.

What is a REIT?

REIT

A REIT, or Real Estate Investment Trust, is a publicly traded company that owns or operates income-producing real estate properties. These properties can include apartment buildings, office spaces, shopping centers, hotels, and various other real estate assets.

Investing in publicly traded equity REITs allows individuals to participate in real estate ownership without actually owning the properties themselves. By purchasing shares of a REIT, investors become shareholders and benefit from the income generated through rent, lease payments, and property sales.

REITs are known for their monthly dividend payments to shareholders, making them an attractive option for those looking for a steady income stream. This has contributed to the growing popularity of REITs among investors who want to diversify their portfolios beyond traditional investments like mutual funds and stocks.

How do REITs Actually Work?

Real estate investments growing with time

REITs were created in 1960 by Congress to provide individual investors with the opportunity to own equity stakes in large-scale real estate companies. By investing in REITs, individuals can gain exposure to the real estate market and easily diversify their investment portfolios.

To operate in the market, REITs must meet specific standards set by the IRS. These standards include:

  • Paying out at least 90% of their taxable income to shareholders as dividends, making them an attractive investment option for steady income.
  • Investing at least 75% of their assets in real estate-related assets such as properties, mortgages, and real estate securities.
  • Generating at least 75% of their gross income from real estate-related sources such as rent, interest, and gains from the sale of real estate assets.
  • Having a minimum of 100 shareholders after the first year of existence.
  • Ensuring that no more than 50% of shares are held by five or fewer individuals.
  • Having a board of directors and a professional real estate management team.
  • Being organized as corporations, trusts, or associations and taxed as a corporation.

By adhering to these rules, REITs can avoid corporate-level tax payments, making real estate financing more affordable and enabling them to generate more profits to distribute to investors.

Types of REITs

REITs can be categorized into various types based on their investment holdings and strategies. Some common types include:

  • Equity REITs: These REITs own and operate income-generating properties such as apartments, offices, and retail spaces.
  • Mortgage REITs: Rather than owning physical properties, these REITs invest in mortgages and mortgage-backed securities to generate income from interest payments.
  • Hybrid REITs: These REITs combine both equity and mortgage strategies and hold a mix of income-generating properties and mortgages.
  • Healthcare REITs: These REITs specialize in owning and operating healthcare-related properties such as hospitals and medical office buildings.
  • Office REITs: Office REITs focus on owning and generating income from office buildings.
  • Residential REITs: Residential REITs own, operate, or finance residential properties such as apartments and single-family homes.
  • Retail REITs: Retail REITs focus on properties such as shopping centers, malls, and other retail-oriented real estate.

10 Best REITs to Invest in for Reliable Income in 2023

If you're considering investing in REITs, here are the top 10 companies to consider for steady income. The figures mentioned below are as of February 2023:

  1. Crown Castle Inc. - Share price: $141.00, Market cap: $61.06B
  2. EPR Properties - Share price: $42.10, Market cap: $3.16B
  3. Equinix Inc. - Share price: $732.70, Market cap: $67.80B
  4. Farmland Partners Inc. - Share price: $12.70, Market cap: $693.22M
  5. Getty Realty Corp - Share price: $34.89, Market cap: $1.63B
  6. GLPI Gaming and Leisure Properties, Inc. - Share price: $53.26, Market cap: $13.72B
  7. IRM Iron Mountain - Share price: $53.04, Market cap: $15.42B
  8. Realty Income Corp - Share price: $66.23, Market cap: $41.54B
  9. Simon Property Group Inc. - Share price: $124.41, Market cap: $42.66B
  10. VICI Properties, Inc. - Share price: $34.48, Market cap: $35.11B

How To Pick The Best REIT Stocks

When selecting the best REIT stocks from the market, there are several factors to consider:

Diversification

Look for REITs that own a diverse portfolio of properties across different geographical locations and property types. This diversification helps spread out the risk and minimize the impact of underperforming properties.

Financial Performance

Evaluate the REIT's financial performance, including its revenue growth, operating margins, and dividends. Assess the REIT's balance sheet to gauge its financial strength and stability.

Occupancy Rates

High occupancy rates indicate that the REIT's properties are in demand and generating steady rental income.

Market Trends

Consider the overall real estate market trends and how well the REIT can adapt to changing conditions.

Management Quality

The quality of a REIT's management team can significantly impact its performance. Look for REITs with experienced and knowledgeable management teams that have a proven track record of success.

Valuation

Compare the REIT's stock price to its earnings and assets to determine whether it is overvalued or undervalued.

Market Conditions

Stay informed about current market conditions and economic trends, as they can greatly influence REIT performance.

Pros of Investing in REITs

Investing in REITs offers several benefits, including:

Diversification

REITs provide diversification to investment portfolios by offering exposure to the real estate market, which can perform differently from other asset classes like stocks and bonds.

Potential for Steady Income

REITs generate income through rental payments and are required by law to distribute at least 90% of their taxable income to shareholders as dividends. This steady income stream can provide additional financial stability.

Professional Management

REITs are managed by professionals who handle property acquisition, management, and optimization of rental income. This is particularly beneficial for individuals who lack the expertise or resources to invest directly in real estate.

Liquidity

REIT stocks are publicly traded, which means they can be easily bought and sold as needed.

It's important to remember that like any investment, REIT stocks come with risks. It's vital to carefully consider these risks and your investment goals before making a decision. Consulting with a financial advisor can provide valuable guidance.

Cons of Investing in REITs

Investing in REITs also has some drawbacks to consider, including:

Market Risk

REITs are subject to market fluctuations and changes in property values, occupancy rates, and rental income can impact the value of REIT stocks.

Interest Rate Risk

REITs often finance their properties through debt, which means rising interest rates can increase borrowing costs and negatively impact financial performance.

Management Risk

The quality of a REIT's management team plays a significant role in its performance. Poorly managed REITs can underperform and result in lower returns for investors.

Concentration Risk

Some REITs may have a concentrated portfolio, focusing on a specific type of property or geographic region. This concentration can make them more vulnerable to market conditions in that specific area.

Dividend Risk

While REITs are required to distribute a significant portion of their income to shareholders as dividends, there is no guarantee that these dividends will be sustained in the future. A REIT may reduce or eliminate dividends if its financial performance deteriorates.

Investing in REITs: How to Get Started

To start investing in REITs, you'll need to open a brokerage account that allows you to buy and sell REIT stocks listed on major stock exchanges.

For experienced and qualified advice, you can reach out to one of our advisors at Bay Street Capital Holdings. They are a Black-owned, independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA.

Bay Street Capital Holdings

Bay Street Capital Holdings focuses on managing portfolios to maintain and increase total assets and income while prioritizing risk and volatility management. They prioritize managing total risk and volatility over maximizing returns, distinguishing them from other advisors.

The founder, William Huston, is recognized as one of Investopedia’s Top 100 Financial Advisors for 2022. Bay Street Capital Holdings is the only Black-owned firm among the twenty firms that received this recognition in California. Ekenna Anya-Gafu CFP, AAMS is also recognized as one of the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and attention to detail.

In 2021, Bay Street Capital Holdings was selected as a finalist in the Asset Manager for Corporate Social Responsibility (CSR) category out of over 900 firms across the US.

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