Is Real Estate Investment Trusts A Good Career Path?

real-estate-investment

Real estate investment trusts attract attention because of many reasons. One of these reasons is higher returns – both immediate and delayed. Another is the understanding you develop about the real estate market when you actively invest in these trusts.

If you aren’t looking from an investor’s viewpoint and want to get hands-on experience in the field by working in this industry, you would find it lucrative in that area also.

The investment industry offers some of the highest-paying career paths. Add to it the profitability that is promised from the real estate industry. After all, the best investment on earth is earth, right?

So, you are looking to build your career in real estate and don’t know if real estate investment trusts a good career path. Worry not! This post will explain these career options in detail after explaining the industry in detail.

What Are Real Estate Investment Trusts?

Often known as REITs, real estate investment shares are divisions – or shares – of properties jointly owned by many people to earn property income from it.

Let’s suppose an organization wants to buy or mortgage some property and decides to fund this investment by issuing shares. These shares will jointly own the corporation and all the people who buy the shares will become owners of this property.

The organization will rent out or lease out the property to earn periodic income. This income is translated into profit after deducting operating costs. In the end, this net profit is divided into two parts.

One part of this earning will go to the shareholders – or REIT unitholders – as dividends. The second part is reinvested in buying a new property to grow the asset.

Now you have understood the basic structure of operations within an REIT, let’s analyze different types of these trusts available in the market.

Equity REITs

Equity REITs

Equity REITs are those trusts that raise the fund to buy a property and manage it. The ownership and management remain within the trust’s hands and the trust, alone, is responsible for all the profits and losses. The management can rent out or lease out the property to earn income.

Mortgage REITs

Mortgage REITs

You can guess from the name, these trusts don’t want to share the day-to-day maintenance of the property. Also, they don’t want to take the burden of risk and return on these assets.

Their sole concern is earning a fixed amount that is either tied to the prevailing interest rate or is fixed when the property is purchased. These properties minimize their risk by buying mortgages on commercial properties.

Just like their investment side, their financing side also works on loans. Their certificates are essentially loan certificates that earn the investor fixed interest income regularly.

Hybrid REITs

Hybrid REITs

These trusts want to offer higher returns on investment while keeping a higher share from their income. They increase the profitability by changing the nature of financing costs from non-tax-deductible dividend payout to tax-deductible interest expense.

They do so by issuing preferred shares instead of common shares to raise finance while buying a property. For the investors, these shares carry a higher risk than loans because their dissolution value depends on the assets held by the trust, unlike mortgages that are only sold at face value. This higher risk is compensated with a higher interest rate.

Although the financing side of these REITs is different from the equity REITs, they are similar to the latter in terms of operations. Simply put, these REITs buy, own, and manage the properties to earn a return.

REITs Portfolios

REITs Portfolios

The simple example we have given above says that the organization starts with buying one property. But that is not a hard and fast rule for these trusts. An REIT can start its operations by buying a portfolio of properties.

Usually, these properties are commercial. Examples of most profitable REIT properties include office buildings, malls, warehouses, shopping centers, and hospitals.

Pros and Cons of REIT

Pros and Cons of REIT - real estate investment

Investors pursue REIT because of several reasons.

It allows them to invest in the lucrative real estate market without risking huge sums. At the same time, they gain access to a diversified portfolio without having to investigate the properties while remaining within the budget.

The biggest advantage of these certificates is the diversification of risks. These certificates represent portions of different investment properties allowing the investor to earn a dependable return. Compare it with the unstable return on a single property held by the investor which may or may not be rented out.

Liquidity is one of the most quoted advantages of these certificates. You can sell it in the open market or through your broker at a price that depends on the demand-supply conditions or value of underlying assets. And you may earn some profit at this transaction.

REITs allow smaller investors to invest in commercial properties irrespective of the investment they are willing to make.

Continuous cash flow is another attractive promise of these certificates.

Is Real Estate Investment Trusts A Good Investment Option?

If you are looking to build an investment portfolio, you may consider REITs as a possible choice. Is this choice worth your time and money? What factors should you consider while investing?

Just like any other investment, REIT investments have a dependable return on investment, risks of losses or drowned investment, and growth potential. If we compare its ROI with that of stocks, we might not get a lot of difference.

Although the monetary compensation isn’t dramatically different, the risk involved in REIT investment is lower than what prevails in stocks.

REIT may not yield as much return as loan notes. But if you compare this option against bonds and notes investment, REIT trumps over these interest-bearing notes in terms of ROI. Beware the REIT certificates carry a higher risk than bonds.

Because of its mix of risk and return, REIT can be suitable for some socio-economic groups and not for others. Most investors include these certificates in their investment portfolio together with stocks, bonds, and treasury notes.
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Operations of Real Estate Investment Trust

So we have considered different types of REITs according to their investment potential. We have also developed an understanding of how much benefit these certificates can bring to the holder. Let’s now consider this industry from the viewpoint of a job seeker.
We shall start by looking at different tasks handled by these trusts.

Property Development

Property Development - real estate investment

While some REITs focus on buying developed properties to rent out, others increase the return by developing it from the land up. Obviously, these organizations have to maintain a construction department that plans and constructs the building.

You can be a civil engineer, architecture, site inspector, project manager, or electrical engineer to be a part of these departments. The job prospects are lucrative along with above-average salaries for most roles.

The planning work can go back to acquiring suitable properties and allocating the budget. These tasks require knowledge of the property market as well as financial management.

Asset Management

Asset Management real estate investment

Essentially every property held by an REIT is an asset. The company’s primary purpose is to acquire, hold, manage, and monetize these assets. This core business function requires a myriad of skills including planning, budgeting, and real estate investment knowledge.

As these roles require planning skills, the career starts at the middle management level. The career starts with an average salary that increases as the executive builds insight and understanding of the field.

Property Management

Property Management - real estate investment

Property management deals with the day-to-day operations of properties. The tasks may include maintaining the property, collecting rent, and dealing with the lessees. As you can see the tasks do not require higher cognitive function so the entry-level is executive-level.

Acquisition Analysts

Acquisition Analysts - real estate investment

These analysts have a deep knowledge of the real estate investment. They keep an eye out to detect potentially profitable deals for future investments. And once a deal is identified, they execute it from negotiation to documentation. The ROI over the investment’s life cycle depends on the successful execution of this step.

Unsurprisingly, this is the highest-paid job within the REIT sector.

Is Real Estate Investment Trusts a Good Career Path?

Most of the jobs in the REIT industry require specialized skills. Only a few jobs – including maintenance, rent collection, and fieldwork – require a lower education level and minimal insight into the real estate market. Employers compensate for these additional skills and higher planning, negotiation, and overseeing skills with higher salaries.

Most of the work is done at the back end with only a few front desk people dealing with the investors. However, the industry is heavily regulated by the authorities through auditors and internal and external watchdogs. For most REITs that have reliable internal controls in place, the feeling of job fulfillment is visible.

Job security is the topmost benefit quoted by the workers in this industry. As the industry depends heavily on knowledge accumulation, organizations minimize the employee turnaround to minimize part of their internal knowledge bank from leaving the company.

Take Away

If you have an interest in real estate investment or if you find joy in dealing with finances – management and planning, you might have considered building a career in the REIT sector. This sector connects the two fields – real estate and investment – to allow the investors to build their wealth in the real estate market.

At the same time, it allows finance professionals to build their careers in the property acquisition and management industry. Before you get too caught up in the idea, ask yourself, ‘Is real estate investment trusts a good career path?’ This post explains the jobs offered within the industry and their earning potential.

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