For a very long time, people who wanted to invest in stocks would find that they required a lot of highly specialized knowledge. They would work with brokers, but would need to determine just how trustworthy those brokers were, and then make decision based on that. This all changed when mutual funds started to be developed, something that Al Hartman has long been interested in. Essentially, in a mutual fund, the responsibility of choosing what to invest in, is taken out of hands and sent to the fund managers, having the faith that they know what they’re doing. The only downside was that mutual funds did not include real estate. Today, however, they do.

Al Hartman on REITs

Today, mutual funds have developed into the world of real estate, mainly through the development of so-called Real Estate Investment Trusts, or REITs. These offer a perfect proposition for those who want to invest in real estate, but do not want to have the responsibilities associated with managing a property. It also means that they can invest all over the country, from Houston to Washington, regardless of where they live themselves. They don’t even have to see a photo of a prospective property, in fact!

There are two main types of REITs:

1. Equity REITs. Here, pooled funds are used in order to purchase income property such as shopping centers, office buildings, and residences.
2. Mortgage REITs. In this case, money is invested in offering mortgages to property owners, instead of in the property itself.

In some cases, a combination of the two is developed. Either way, 90% of the dividends in a REIT must be distributed to its shareholders each year.

The shares in a REIT are liquid, just as they are with mutual funds. This means people can sell whenever they want. Additionally, they require a passive investment, meaning that shareholders choose which REIT to invest in, but not how that money is then used.

For some, this makes the REIT a perfect investment, as it means there are no real estate complexities to deal with. Of course, for some people, the uncertainty associated with not having any decision-making power makes it a poor investment choice. According to Al Hartman, it is all down to the individual investor’s personal abilities and desires.

Overall, a REIT is a solid investment that has shown very good returns over the past few decades. Essentially, real estate is always a good inclusion in a diversified portfolio. However, as real estate requires more and more money to invest in, REITs are a much better alternative. They enable people to purchase not a specific plot of land or property, but rather a share in a company that purchase and sells multiple plots of land and properties. It also means that you don’t have to deal with being a landlord, taking out insurance, finding tenants, chasing rents, performing repairs, and more. Instead, you simply watch your investment grow in a low risk environment.