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How do I Choose the Best Retail REITs?

A. Leverkuhn
A. Leverkuhn

Retail REITs are a specific kind of investment opportunity in real estate. The Real Estate Investment Trust (REIT) is a recognized and somewhat regulated structure for offering real estate fund equities to investors. By law, a REIT is required to distribute the majority of its taxable income to shareholders, which virtually guarantees that an REIT will behave similarly to other kinds of financial products offered to investors.

A specific kind of REIT, retail REITs focus on commercial properties used for retail. Generally, REITs are restricted to several kinds of financial operations including straightforward investment in real estate properties or investing in mortgage securities. In retail REITs, the investor is specifically looking to make money on the operation of retail spaces.

Man with hands on his hips
Man with hands on his hips

One of the first things that investors look for in retail REITs is yield. The yield is what the fund will earn the investor over time. To get an accurate picture of yield, the investor has to subtract any fees or expenses involved in buying into the REIT. The “net yield,” after fees, is a major part of the attraction to a specific retail fund.

Apart from just looking at yield, it’s a good idea to choose retail REIT options according to the overall economic environment. Investors often look at how commercial real estate is doing in the general market, as well as occupancy rates for the specific kinds of properties offered in the REIT portfolio. Some concerns about competition in the form of e-commerce also affect how investors search for the perfect retail REIT.

Another item that investors might use to determine the best retail REIT is the strategy of the company managing the fund. Different REITs have different leadership philosophies that pursue yield in different ways. Some retail REIT managers pursue acquisitions less aggressively, while others “turn over” real estate inventories in order to re-position for future gains. Other retail REITs might focus on building up cash reserves in order to manage debt. Looking at the cash asset and debt situation on a REIT is part of the critical research that an investor should do to get the best chance of successful gains with this kind of financial product.

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