Experts agree, the single most important factor to building wealth for individual investors is the mix of assets that are maintained over the long term. Proper diversification among different investments will optimize returns and reduce volatility over time.
Because real estate is a distinct asset class with limited correlation to most other investments, it is a key contributor to this optimum asset mix. However, most individual investors do not have the capital or the management skills to achieve direct ownership of a shopping mall, hotel, retirement home, office building, apartment complex or industrial property.
REITs expose investors to real estate in a highly liquid, marketable security that provides steady, tax-advantaged income, plus the potential for capital appreciation should the properties increase in value.
REITs can do just about everything a mutual fund, individual stock or bond can do, but because real estate has limited correlation to most other stocks and bonds, REITs provide one more layer of diversification –contributing to effective wealth creation for individual investors.
Investing in REITs is an excellent way to diversify a portfolio and establish a steady income stream – without sacrificing growth potential. Real estate offers competitive investment performance relative to stock and bond market indices. And, by investing in real estate through a REIT, you get the following additional growth drivers:
- A REIT has critical mass and has the potential to bring synergies to individual properties, creating value that otherwise would not exist
- A REIT has professional managers mandated to pursue steadily increasing distributions and capital appreciation over the long term
- In Canada, most management have a meaningful ownership stake in their REIT
- As a marketable security, a REIT provides liquidity far beyond direct investment in real estate