Do REITs perform well during high interest rates? (2024)

Do REITs perform well during high interest rates?

During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases.

Do REITs go up when interest rates go up?

This is because when interest rates rise, it becomes more expensive for Reits to borrow money to refinance their loans, resulting in an erosion of their dividends. On top of that, returns from yield products like fixed deposits and government Treasury bills were also on the rise, competing for investors' capital.

Do REITs outperform the S&P 500?

REITs have outperformed the S&P 500 over the long term. A big driver has been the robust returns from self-storage, industrial, and residential REITs. The factors that have enabled those REIT subgroups to deliver strong returns remain in place.

Are REITs safe during inflation?

REITs provide natural protection against inflation. Real estate rents and values tend to increase when prices do. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.

Are REITs expected to rise?

The REIT has a Zacks Rank #2 at present. The Zacks Consensus Estimate for the retail REIT's 2023 FFO per share has been unchanged over the past month. Despite this, the estimate figure suggests year-over-year growth of 2.3%.

Do REITs lose value when interest rates rise?

Rising interest rates hurt not only the value of REITs' property holdings but also the cost of debt to finance those properties or even refinance already-owned assets.

Why do high interest rates hurt REITs?

Therefore, if rates begin to rise then REIT cash flows will decline at a time when discount rates are rising. They fear the end result will be capital losses that offset the higher distribution yield and result in negative total returns.

What is the 90% rule for REITs?

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

What is the downside of REITs?

Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.

Are REITs a good investment in 2024?

April 2, 2024, at 2:50 p.m. Real estate investment trusts, or REITs, are a great way to invest in the real estate sector while diversifying your options. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.

Do interest rates hurt REITs?

Interest Rates. During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases.

Should I invest in REITs during recession?

By law, a REIT must pay at least 90% of its income to its shareholders, providing investors with a passive income option that can be helpful during recessions. Typically, the upfront costs of investing in a REIT are low, while their risk-adjusted returns tend to be high.

What are the worst investments during inflation?

Cash, fixed-rate bonds and certain types of stocks are generally seen as poor investment choices during high inflation.

How are REITs doing in 2024?

The REIT sector had a rough start to 2024 with a -5.72% total return in January. Large cap REITs (-4.79%) outperformed their smaller peers in January. Micro cap REITs (-8.39%) averaged the steepest declines. Only 9.55% of REIT securities had a positive total return in January.

Why not to buy REITs?

The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.

What happens to REITs when interest rates fall?

REITs. When interest rates are falling, dependable, regular income investments become harder to find. This benefits high-quality real estate investment trusts, or REITs. Strictly speaking, REITs are not fixed-income securities; their dividends are not predetermined but are based on income generated from real estate.

Can REITs go to zero?

But since REITs are invested in property, there's more protection against the horror show of having shares crash to $0. By law, 75% of a REITs asset must be invested in real estate. The market value of the property owned by the REIT offers a bit of protection, as long as the value of the property doesn't go to zero.

Are REITs riskier than bonds?

Stocks and REITs are not guaranteed and have been more volatile than bonds. Stocks provide ownership in corporations that intend to provide growth and/or current income. REITs typically provide high dividends plus the potential for moderate, long-term capital appreciation.

What is the average return on REITs?

The FTSE Nareit All REITs index, which tracks the performance of all publicly traded REITs in the U.S., had an average annual total return (dividends included) of 3.58% during the five-year period that ended in August 2023. For the 10-year period between 2013 and 2022, the index averaged 7.48% per year.

How does inflation affect REITs?

Historically, REITs have provided inflation protection with their unique ability to increase revenue through rent repricing, as well as via inflation-linked growth of their portfolio values, since replacement cost value increases exhibit strong correlation with inflation.

How long should I hold a REIT?

"Both public and non-public REIT investments should be considered long-term, and that could mean different things to different folks, but in general, investors who typically invest in REITs look to hold them for a minimum of three years, and some of them could hold them for 10+ years," Jhangiani explained.

How much of my retirement should be in REITs?

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

Can you retire with REITs?

REITs are a Potent Source for Retirement Income

On average, 70% of the annual dividends paid by REITs qualify as ordinary taxable income, 15% qualify as return of capital, and 16% qualify as long-term capital gains.

What I wish I knew before buying REITs?

A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.

Are REITs better than owning property?

Perhaps the biggest advantage of buying REIT shares rather than rental properties is simplicity. REIT investing allows for sharing in value appreciation and rental income without being involved in the hassle of actually buying, managing and selling property. Diversification is another benefit.