Real estate investment trusts (REITs) have gained popularity recently as investors have sought alternative investments to diversify their portfolios.
Is Real Estate Appraisal a Good Career Path?
Are you considering a career in the real estate industry but not sure where to start? Real estate investment trusts, or REITs, may be a viable option to explore. In this article, we will delve into the world of REITs, discuss their advantages and disadvantages, explore the job opportunities available, and provide insights into the skills and education required to pursue a career in this field.
What are REITs?
REITs are companies that own and operate income-producing real estate assets. These include office buildings, shopping centres, apartments, hotels, etc. REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive investment option for those seeking steady income streams.
Types of REITs
There are several types of REITs, including:
Equity REITs: These own, operate, and lease out properties like office buildings, apartment complexes, warehouses, shopping centres, hotels, etc. They collect income from rental payments and tenant leases. Equity REITs make up the majority of REITs.
Mortgage REITs provide real estate owners and operators financing by originating or acquiring mortgage loans and mortgage-backed securities. Their income comes from interest payments on mortgages and loans.
Hybrid REITs: These own a combination of both property and mortgages. They have elements of both equity and mortgage REITs.
Speciality REITs: These focus on a specific niche area of real estate, like self-storage units, cell towers, data centres, health care facilities, etc. This allows them to capitalize on trends within that specialized area.
Infrastructure REITs: These deal with infrastructure assets like communication towers, data centres, cell towers, transportation assets, power and pipelines. They provide stable, long-term rental income streams.
Advantages of REITs
Here are some of the main advantages of investing in REITs:
Diversification – REITs allow you to invest in real estate assets without buying and managing properties directly. This provides diversification for your portfolio.
Income potential – Many REITs distribute a high percentage of their rental income to shareholders as dividends. This can provide a relatively high yield compared to other investments.
Liquidity – Since REITs are publicly traded, you can buy and sell them easily. This is in contrast to directly investing in physical properties, which are typically illiquid.
Professional management – REITs are managed by professionals experienced in selecting, financing and operating commercial real estate properties. You avoid the hassle of managing properties yourself.
Lower cost of entry – Since REIT shares can be purchased in smaller amounts, they provide a more affordable way to gain exposure to commercial real estate than directly investing in properties.
Access to specific niches – Specialty REITs allow investors to access specific real estate niches like cell towers, data centres, self-storage units, etc., that may otherwise be difficult for retail investors to invest in.
Potential for appreciation – While REIT dividends provide income, REIT share prices can also appreciate over time as property values rise. This offers potential for capital gains in addition to income.
Disadvantages of REITs
Here are some of the main disadvantages of investing in REITs:
Volatility – REIT share prices can be volatile, especially during economic downturns when real estate values and rents may decline. This subjects investors to more risk compared to more stable investments.
Reliance on debt – Many REITs use high leverage through debt to acquire properties, which leaves them vulnerable to rising interest rates and difficulty refinancing. This increases their risks.
Limited diversification – While REITs provide diversification across properties, they still have concentration risks related to geographical regions, property types and customer segments. Their fortunes rise and fall with the real estate market.
Exposure to inflation – REITs may struggle to raise rents fast enough to keep up with inflation, which can compress their profit margins over time. Inflation poses a risk to their income-producing ability.
Dividend cuts – When profitability declines, REITs may be forced to cut or suspend their dividends, disappointing income investors. Dividend cuts can cause large share price drops.
Lack of control – As a shareholder, you have little say in managing the REIT. You must rely on management to make good property acquisition and leasing decisions.
Expenses and fees – REITs incur fees for acquiring and managing properties that reduce their profits and your returns as an investor.
Job opportunities in the REIT industry
There are several job opportunities available in the REIT industry:
• Property manager – This is one of the most common roles. Property managers oversee the day-to-day operations of the REIT’s properties, including maintenance, repair, leasing and tenant issues.
• Analyst – REITs employ analysts to research market trends, identify acquisition opportunities, evaluate investment risks and generate financial models. There are analyst roles focused on asset management, acquisitions, portfolio management, etc.
• Investment manager – Investment managers are responsible for evaluating potential investments, negotiating deals, overseeing acquisitions and managing the REIT’s portfolio of properties.
• Accountant – REITs need accountants to handle financial reporting, tax compliance, financial analysis, budgeting and auditing tasks. Many accountants eventually move into other roles within REIT firms.
• Leasing agent – Leasing agents market and lease the REIT’s properties to commercial and residential tenants. They negotiate lease agreements and handle tenant requests and issues.
• Asset manager – Asset managers work to optimize the performance of individual properties within the REIT’s portfolio. They focus on occupancy rates, rental income, operating expenses and capital expenditures.
• Trading and portfolio manager – These roles focus more on the financial and investment aspects of REITs. They trade securities, manage financial risk, and make investment recommendations to maximize returns.
• Legal counsel – REITs employ attorneys to handle all legal issues related to acquisitions, management agreements, debt financing, joint ventures and regulatory compliance.
Skills required for a career in REITs
Here are the main skills required for a successful career in the REIT industry:
• Real estate knowledge – A strong understanding of commercial real estate fundamentals is essential. This includes knowledge of different property types, lease agreements, valuation, market trends, and real estate finance.
• Analytical skills – REIT professionals use data and metrics to evaluate investment opportunities, monitor property performance, and make recommendations. Strong quantitative and analytical skills are needed.
• Finance skills – Since REITs rely on debt financing, issuing equity, and managing investment portfolios, knowledge of financial concepts like valuation, risk management, and capital structure is important.
• Communication skills – REIT employees communicate with tenants, property managers, investors, analysts, and other stakeholders. Strong writing and verbal communication skills are helpful.
• Business skills – Strategic thinking, negotiation, budgeting, and understanding financial statements translate well to a REIT business environment.
• Interpersonal skills – REIT employees often work in teams and interact with various stakeholders. Qualities like empathy, active listening, and adaptability are valuable interpersonal skills.
• Willingness to learn – The commercial real estate industry constantly evolves with new technologies, business models, and trends. The ability and motivation to continuously learn are important for career growth.
• Detail-oriented – Many REIT roles involve particular tasks like financial reporting, investment analysis, and property management operations. Being detail-oriented and organized helps ensure accuracy.
Education and Training Requirements
Here are the key education and training requirements for working in REITs:
Bachelor’s Degree: A bachelor’s degree is typically required for entry-level REIT roles. Popular majors include:
Real Estate: Focuses on commercial real estate skills like valuation, investment analysis, finance, and development.
Finance: Teaches financial modelling, analysis, valuation, risk management and capital markets skills relevant to REITs.
Business Administration: Provides a broad business foundation, analytics, communication, and teamwork skills.
Accounting: Useful for accounting, reporting, and tax compliance roles within REITs.
Master’s Degree: For more senior roles like portfolio management, investment analysis, and risk management, a master’s degree is often preferred.
Popular master’s degrees include:
- Real Estate
- Finance
- Business Administration
- Economics
Industry Certifications: Certifications like the CCIM (Certified Commercial Investment Member) demonstrate in-depth commercial real estate knowledge. They can help you stand out for certain roles within REITs.
Internships and Training Programs:
• Unpaid or paid internships during your studies expose you to “on the job” experience within a REIT. They can lead to a full-time role upon graduation. Some larger REITs offer training programs for new graduates to develop job-specific skills.
Continuing Education: The commercial real estate industry changes rapidly, so continuing education is important to stay current. Courses, seminars and conferences help REIT professionals learn the latest industry trends.
Job positions in the REIT industry
Some of the job positions available in the REIT industry include:
- Property manager: Responsible for managing the properties owned by the REIT.
- Asset manager: Oversees the performance of the REIT’s real estate portfolio and makes strategic decisions about buying, selling, and managing properties.
- Investment analyst: Conducts research and analysis on potential investment opportunities for the REIT.
- Legal and regulatory compliance: Ensures the REIT complies with all applicable laws and regulations.
- Marketing and communications: Develops and implements marketing and communication strategies for the REIT.
Salary Expectations
Salary expectations for working in REITs vary based on several factors:
Role – Salaries differ significantly based on the specific job role within the REIT. For example:
Property manager: Median salary $50k to $70k
Analyst: $60k to $90k
Investment manager: $100k to $150k
Senior leadership: $150k+
Experience – Entry-level roles typically pay less, while those with 10+ years of experience can command higher salaries.
REIT size – Larger REITs pay more than smaller ones due to higher resources and talent competition.
Geography – Salaries are higher in major urban areas like New York City and San Francisco than the national average.
Performance – Higher performing employees who exceed goals and take on more responsibilities may receive larger raises and bonuses.
Negotiation skills – Your ability to effectively negotiate salary during the job offer process can impact your compensation.
Here are some broad salary ranges for popular REIT roles:
- Property manager: $40k to $80k
- Analyst: $60k to $120k
- Asset manager: $80k to $150k
- Investment manager: $100k to $200k
- Senior portfolio manager: $150k to $300k+
- CEO/CFO of large REIT: $500k to $1M+
Future Outlook for Reits
The future outlook for REITs looks positive based on several factors:
Growing popularity – REITs have become an attractive asset class for retail and institutional investors. This is expected to continue driving asset growth for the REIT industry.
Strong real estate fundamentals – Commercial real estate fundamentals remain healthy, with steady job growth, rent growth and occupancy rates. This bodes well for future REIT performance.
Low-interest rates – Persistently low-interest rates have made REIT yields attractive, drawing more investor capital. Rates are expected to remain low in the near term, benefiting REITs.
Demographic trends – Long-term demographic trends like population growth, urbanization and the ageing of baby boomers are expected to create demand for the types of real estate assets owned by REITs.
Innovation and technology – REITs are embracing technologies like AI, IoT, big data, and blockchain to improve property management, leasing and acquisitions. This should boost efficiencies and returns in the future.
Global expansion – Many large REITs are expanding into international markets with growth opportunities. This provides a tailwind for their future business.
Merger and acquisition activity – Consolidation within the REIT industry is expected to continue as large REITs acquire smaller ones to achieve economies of scale. This may produce synergies and expand product offerings.
Some of the challenges of working in REITs
Working in real estate investment trusts (REITs) can present several challenges, including:
Market volatility: The real estate market can be volatile, and REITs are subject to changes in market conditions that can impact their performance and the value of their investments.
Regulatory compliance: REITs are subject to complex regulations, including tax rules and securities laws. Compliance with these regulations can be time-consuming and expensive.
Property management: REITs own and operate real estate properties requiring management and maintenance staff. Managing a large portfolio of properties can be challenging, and maintenance costs can be significant.
Competition: The real estate market is highly competitive, and REITs must compete with other investors and developers for the best properties and investment opportunities.
Interest rate risk: REITs often use debt to finance their investments, making them vulnerable to interest rate changes. Rising interest rates can increase borrowing costs and reduce profitability.
Investor expectations: REITs are publicly traded companies and are subject to the expectations of investors and analysts. Meeting these expectations can be challenging, particularly in a dynamic and competitive market.
FAQs
What is the difference between a publicly traded REIT and a non-traded REIT?
A publicly traded REIT is on a public stock exchange and can be bought and sold like any other publicly traded stock. A non-traded REIT, on the other hand, is not traded on a public exchange and may be illiquid.
Can I invest in REITs through my 401(k) or IRA?
Many 401(k) and IRA plans offer REIT investment options.
Are REITs a good investment for beginners?
REITs can be a good investment option for beginners, offering diversification and potential for steady income streams. However, it is important to research and understand the potential risks before investing.
Do REITs pay dividends?
Yes, REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends.
What is the historical performance of REITs?
Historically, REITs have performed well, with an average annual return of around 9%. However, past performance does not indicate future results, and investors should do their due diligence before investing.
Conclusion
In conclusion, a career in the REIT industry can be a rewarding and lucrative option for those interested in real estate. REITs offer investors access to a diversified portfolio of income-producing properties and the potential for high dividend yields. The industry also offers a range of job opportunities, from property management to investment analysis. However, knowing the potential risks and disadvantages of investing in REITs is important before making investment decisions.
