Let’s be honest: we can’t really say a great deal of good happened in 2021.

The whole world was thrown into chaos; you couldn’t be sure of the state of the economy from one day to the next. Inflation surged, many businesses withered, the supply chain broke, and some investments that were expected to perform well fell flat.

Real Estate Investment Trust

(Tama66 / pixabay)

In spite of it all, it seemed not everything was going as badly as we expected. REITs came through admirably in 2021. The question now is, will the pattern repeat itself, or should we expect a dull 2022 for the pooled investment vehicle?

What Are REITs?

But what are REITs, you ask? And what does it mean when they boom?

REIT stands for Real Estate Investment Trust (its acronym rhyming with “meet”). REITs exist as a means of allowing the average investor like you or me to invest in income-producing real estate ventures. They are companies that buy real estate such as malls, hotels, apartment buildings, or warehouses, which they then manage and operate at profitable levels.

REITs can present dynamic opportunities for a group of like-minded, savvy investors. They can put their cash to work investing in real estate projects that they would be incapable of running themselves. All it takes is to stake an investment, and the REIT managers will put that money to work. After that, 90% of the REITs net earnings are distributed each year to their investors in dividends.

Why Were REITs So Successful in 2021?

It’s no secret that the economy took a major hit in 2020. The pandemic hurt a lot of businesses, especially the brick-and-mortar stores that had to be temporarily or permanently shut while we were all locked down. Despite this, the entire market of REITs managed to rise 40% within the year.

This success can be attributed to many different factors, beginning with the huge loss they suffered in 2020. The limitation of outdoor activities caused a sharp drop in mall and hotel REITs as the country stopped attending them. It was also widely expected that a mass exodus of people moving from cities to smaller towns would see a steep loss in the apartment and rental housing REITs.

Then the limitations began to ease, and people once more stepped out into the daylight to breathe the fresh air. In a matter of weeks, malls were once more teeming with shoppers, leading to a rise of 92% in mall REIT income. Apartment REITs saw a gain of 60% as people began to move back together, which also allowed for a boost of 80% to self-storage and warehousing REITs.

In short, the pandemic lockdowns created a boom in the REITs most badly hit by them the year before. Many analysts see 2021 as a rebound year, but this doesn’t necessarily mean it’s winding down. Though you should always be cautious with your investment strategies, REITs have proven themselves to be on the rise and may well be a great focus for the future.

Pros and Cons of REITs

Brimming with excitement after hearing REITs’ success story? Cool.Now, let’s have a look at the pros and cons of investing in them (because nothing’s perfect in this world):

Pros

  • Publicly traded REITs offer a higher level of liquidity than standard commercial properties. They are much easier to buy and sell than commercial properties.
  • REITs can offer much higher returns than other investments, especially when buying according to current trends. Higher use of commercial buildings and malls has a greater chance of making better profits.
  • As REITs are paid out annually, successful purchases will offer a steady income for investments. This is essentially true for accommodations like hotels and apartment buildings.

Cons

  • Non-traded or private REITs can take a while to start providing income. Some REITs must be held for years before they can realize gains.
  • REITs must pay out 90% of their profits as dividends, which means they must regularly issue new stocks, shares, and bonds to increase their coffers. Since the long-term nature of REITs often puts off potential investors, this can mean very slow growth and appreciation.
  • REITs themselves pay no taxes, but investors sadly do.

5 REITs You Should Consider

With the world of REITs having potential, I have compiled a list of five that you should consider if you’re looking to invest in this asset class:

1. Stag Industrial (STAG)

Stag Industrial’s focus is on single-tenant industrial properties. They own and operate over 500 sites across the entire United States. Through 2021, STAG has seen growth through rent escalators and short gaps between tenancy leases.

Stag has been keeping its portfolio of tenants firmly in the e-commerce sector and estimates that 40% of it deals with fulfillment. Some of the tenants they boast of include Amazon.com, GXO Logistics, and FedEx.

2. Essential Properties Realty Trust (EPRT)

EPRT operates across 45 states and deals with net lease properties. They currently own almost 1,400 properties which they have leased out to around 300 tenants. Each tenant in their portfolio is responsible for all property expenses.

Their tenants are primarily from the service industry sector, including automotive repair, casual dining, and childhood education. Since EPRTs tend to focus on smaller property sizes, they provide ease in buying and selling as the market sees fit.

3. Medical Properties Trust (MPW)

As the name implies, Medical Properties Trust operates primarily in hospitals, inpatient rehabilitation centers, and behavioral health facilities. They own more than 400 medical properties across 34 states, keeping their portfolio open and expansive.

They also use the net leasing structure for their properties, and you can rest assured of the consistency of their tenants.

4. Postal Realty Trust (PSTL)

Postal Realty Trust owns over 900 properties across 49 states and makes a very trustworthy occupant. The USPS is a steady and reliable tenant in an industry that maintains high relevance to the country. PSTL has seen several impressive growth periods since its IPO in 2019 and can be seen as a reliable investment in the future.

5. UMH Properties (UMH)

UMH is the nation’s leading owner and operator of manufactured housing communities. To date, they own 24,000 developed home sites across 127 housing communities. Despite this impressive portfolio, UMH is looking to grow its unit count by 800-900 homes per year going forward. As long as people need homes, UMH will find their market.

Got questions about REITs? Need guidance on how to invest in them? We can help you with REITs and your overall wealth building strategy so that you can enjoy wealth now instead of waiting until retirement.