They're alREIT with me :)
Recently we've had some questions about REITs. I am by no means an expert, but can probably stretch to cobbling something together, and then hopefully more knowledgeable people will chime in with comments ;)
A REIT is a real estate investment trust. It's basically an index fund for real estate.
Much like an index fund does for stocks, REITs provide diversity, low costs, and liquidity. If you wanted to assemble a diversified portfolio of real estate without using REITs, you would have to buy multiple properties in various locations. Impossible for most outside the super-rich.
A REIT is a legal entity, and they are obliged to return most of their profits to shareholders as dividends.
Types of REITs
There are of course various types of REITs. Broadly speaking, the main options are geographical (where is the property?) and focus (what kind of property?).
So you can choose between Japan REITs (where all the property is in Japan), US REITs, world REITs, etc.
You can also choose between commercial, residential, and more specialized options (like medical, retail, warehouse, etc.).
Examples of REITs
You can see a list of Japan-based REITs here. My wife owns 1345, an index of REITs. Kind of meta, that one.
You could probably do better by choosing sectors and individual REITs yourself, but we are happy not to have to think about it too much.
Why would you want to own a REIT?
Mainly for diversification purposes, and for income.
REITs should behave like property, so they are probably not going to move at the same time and in the same direction as shares (they are less correlated).
The yields on REITs tend to be higher than bonds/stocks too.
What are the downsides?
As long as you are holding an appropriate amount of REITs as part of a diversified portfolio, I don't think there are any major downsides. They probably won't grow as much as stocks, but should be less volatile and provide more income. It's probably worth looking at fees and making sure you are not paying too much.
What do you think? Do you own REITs? Any recommendations? Did I miss anything important in the post?