Some investors understand the potential benefits that come with diversifying their portfolios. Whether you’re considering publicly traded securities that allow you to own shares of a company listed on the New York Stock Exchange, or you’re looking for real estate investment opportunities, diversification can be important.
In addition to diversity, some investors, especially those who are looking at real estate investments, may be looking for the opportunity to earn passive income. Real estate is a unique investment type, as you can be as passive or active in your investment as you’d like. While you can certainly purchase, improve, manage, and liquidate a property on your own, doing so is a time-consuming process, which often leaves investors looking for other options. REITs, which offer investment opportunities in virtually every type of real estate, provide investors with a truly passive opportunity.
Real estate investment trusts, also referred to as REITs, are an investment opportunity for investors who want to take a passive approach to their real estate investing. When you invest in a REIT, you aren’t actually investing in a particular property. In a REIT, the trust is responsible for identifying properties, purchasing them, managing them, and liquidating them (if doing so is a part of the business plan). Ultimately, the trust owns the subject properties. Investors purchase shares in the trust, which then entitles them to a portion of the profits generated by those properties. According to federal guidelines, REITs are required to distribute 90% of the profits generated to investors. Owning more shares of a REIT entitles you to a larger share of any profits.
Within the world of REITs, there are multiple types of investments. For instance, some REITs specialize in residential properties. These REITs may focus on purchasing single-family homes, apartment complexes, manufactured homes, or other residential properties. In the same vein, some REITs focus on commercial properties, while others are considered diversified REITs and offer a mix of both.
Within the world of commercial REITs, one of the options is healthcare REITs.
We believe the biggest reason that healthcare REITs have become a popular choice for investors is found in the fact that the class itself is very diverse. For instance, healthcare REITs include hospitals, primary care offices, research labs, long-term care facilities, and every other type of building in which a healthcare service is offered. For investors seeking asset diversification, an asset class that offers diversification within itself can provide a solution.
When you purchase shares in a healthcare REIT, your funds are used to purchase, improve, or manage the healthcare facilities. In exchange for the use of your funds, you receive a portion of any profits (in the form of dividends) generated by the property as well as can benefit from capital/price appreciation of the REIT. Ultimately, shareholders receive a proportionate percentage of the profits compared to the amount of cash that they put into the trust.
With a rapidly aging population in the United States, the opportunity to invest in independent living communities, nursing homes, medical research facilities, and other healthcare-related real estate can be an attractive investment opportunity. Obviously, the investment choices that you make will largely depend on your own investment strategy and financial goals. However, healthcare REITs may be something to consider.