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How do I Choose the Best Healthcare REIT?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 12 February 2020
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For investors who are looking for the best healthcare REIT, choosing the right financial product means evaluating the nature of different REIT funds, and thinking about how the underlying assets of a specific REIT, as well as its leadership strategy, can boost a portfolio. Those who stand to gain the most from a healthcare REIT may have a lot of knowledge about how the healthcare industry works, and how a REIT can apply to a healthcare environment. It helps to know about the general buying practices that help investors make sense of products like REITs, including “due diligence,” the principle of doing your own research, and diversification, which means varying your portfolio to limit overall risk.

One of the first things investors may inspect on a healthcare REIT is its projected yield or gain balanced against its cost. The cost is often listed in the form of an “expense ratio,” but there may be other fees or commissions associated with the product. Doing these calculations will help prospective buyers to know how much income they can likely get from the dividend of a healthcare REIT.

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Another big issue with a healthcare REIT is the precise focus of its operations. Healthcare is a very wide spectrum industry, and from visiting nurses and day surgery, to skilled nursing facilities and inpatient hospitals, there’s a big difference in how healthcare REITs choose their various underlying assets. REITs in this sector may primarily invest in assisted-living, orthopedics, skilled nursing, or other kinds of facilities and operations, and the result may affect the incoming dividends over a given set of years. Investors should also look at how much of a healthcare REIT is directed at the actual acquisition and operation of property, and whether investing in mortgages or mortgage-backed securities also plays a role.

Some experts recommend looking at the issue of cash on hand with a healthcare REIT. Just like single hospitals and medical networks, healthcare REITs need funding. Since, as some of the pros point out, an REIT is limited in how it can use incoming capital, the result can be a large debt burden that leaves some of these REITs relatively at the mercy of changes in interest rates. Some forward thinking REIT managers take steps to curb acquisition, or grow more cash through other tactics that will leave them less vulnerable to the volatility associated with debt. Investors who comb through the prospectus on a health care type of REIT might have a better chance of finding one that matches their investing philosophy.

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