REIT Analysis for Real Estate Investors

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I did not want to look at the rapid collapse of my stock portfolio. Each day last week brought more bad news, and I am not sure that I could take any action which will benefit me dramatically. Sipping my first cup of coffee this morning, I braved the currents to look at my portfolio. I wanted to laugh. I was trying to see if any stock had held its own. One of my REITs did. Glancing at other REITs in my portfolio, I saw that this was not the case with the others. The idea dawned on me that these REITs could provide a useful tool for a real estate investor who was analyzing properties.

REITs are “real estate investment trusts”, and they are the easiest way for many of us to become real estate investors. Most of us think of buying a property when considering this type of investment, and over the long run, I believe that ownership of land and building would produce a better return than a REIT, but I feel that these stocks are good for helping me round out my investments. The interesting thing about REITs is that you can find firms which specialize in one type of real estate. One could deal with medical properties, while another deals with commercial office space, and so on.

How could REITs become a useful tool for the real estate investor who wants to own their property? These stocks could show you the trend in what is considered a good property to buy. In my case, the REIT which held its own specialized in health care properties. The population is getting older and various type of facilities need to be in place to meet this need: retirement communities; medical office complexes; and hospitals for example. Investors who work together may be able to buy into such a facility, or even an investor who has the funds alone. However, I am thinking along the lines of smaller real estate investors, so you may consider networking strategies to work with other investors to purchase a building that would specialize in doctors’ offices.

There are other opportunities for analysis though. The house that you just purchased as an investment could be sold or rented. Looking at REITs that specialize in apartment buildings will show you that it is better to rent now than sell. Taking a broader view, you may have sold some homes, so you have some cash, you may wish to consider stepping up to buy an office building instead of a home to rent (the current values of REITs would suggest not to take this action).

When planning out your strategy, glancing at the trend in REITs could be a way to make a decision about your next step.

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2 Responses to “REIT Analysis for Real Estate Investors”

Mike Hart Says:
October 13th, 2008 at 6:33 pm
HealthCare REITs are out preforming other REITs because they are low leveraged compared to office/appartment REITs not neccissarilly because of the aging demographics.

frankschulteladbeck Says:
October 13th, 2008 at 7:19 pm
You are correct that aging demographics does not mean that health care REITs will naturally do better. I was only attempting to clarify what such a REIT may contain, as an example of the type of facilities an investor may wish to consider.
These vehicles which specialize in apartment complexes are also doing well, which would indicate that rental properties are more in demand, so investor should consider holding off on flipping.
Your point on low leverage (or at least how leveraged they are) is important for evaluating any type of REIT if you are considering investing in one. My post was simply playing with the idea that investors who are looking to buy properties could consider the trends in such stocks as a way to see what form of property they should purchase.

Thank you for pointing that out, and for coming in to comment.