There are various types of investments you can make, and REITs are just one of them. It is offered by multiple financial institutions and offers a great return on investment. But what are these exactly, and should you consider investing in REITs? Find out the answers in this article.
What are Healthcare REITs?
Health care REITs or Real Estate Investment Trusts are investment trusts that own healthcare-based real estate. There are different types of REITs. So you can have Entertainment REITs, Residential REITs, and so forth.
In a healthcare REIT, the company owns an assortment of real estate that provides health care services. Mainly, the establishments are like hospitals, clinics, senior home facilities, skilled-nursing facilities, etc. REITs are much like mutual funds where the money is pooled in from several investors and then invested into something, which in this case are healthcare institutions.
There are more than 225 REITs, out of which 33 are healthcare based. Out of 33, 15 are in the U.S. The market capitalization of some of the top ones, like Welltower, exceeds $30 billion.
You can invest in these REIT funds and expect returns over the years as long as you hold them.
5 Reasons to Buy and Hold Healthcare REITs
Now that you know what these are about, you should consider investing in them too. Here are five best reasons to do so:
- Healthcare Demand is Never Low
Healthcare is often considered recession-proof. People will need healthcare services no matter what. Couple this up with the fact that baby boomers will be 60 and older by 2030, and the Affordable Care Act is driving up demand, and you get no reason not to invest in healthcare. One of the largest REITs in the healthcare sector, Ventas Inc, expects a stronger healthcare industry, going forward.
- Steady Income
In terms of performance, these investments tend to offer risk-adjusted returns on a regular basis. Since healthcare is always in demand, the facilities are going to be occupied. This generates reliable and steady dividends for years. Janus Long-Term Care ETF has paid dividends at a rate of 2.03% YOY. Similarly, IShares Residential and Multi-sector Real Estate Capped ETF offered a 5.77% annual return on average.
- Easy to Buy and Sell
Healthcare REITs are publicly traded, and hence easier to buy and sell. This ultimately eliminates the drawbacks of holding real estate properties, which involve endless paperwork. You can buy REITs sitting from your home and sell them the same way. Therefore, REITs are a good place to start if you want to get started with real estate investment.
- Create a Diverse Investment Portfolio
A good investment portfolio demands diversity. With these REITs on your portfolio, you can have liquidity, stability, and risk-adjustment on your side. You can then take more risks with other investments since REITs guarantee a stable return.
- High Level of Transparency
The REITs are generally known to be very transparent. Since these are stock-listed and scrutinized by regulators, trust managers are not left with any options but to disclose anything and everything to the public. Also, since 75% of the total assets for REITs are required to be real estate, they are very liquid, which becomes much harder for anyone to manipulate.
No investment comes without some level of risk. And that is the case with healthcare REITs too. The primary risk is that of market risk. Since the trusts invest in real estate properties and are dependent on rent, the returns depend on how many properties are rented.
If there’s no rent, then it won’t likely generate a profitable return. Especially during the COVID-19 pandemic, senior housing and skilled-nursing facilities were hit hard. But because the trusts are well-managed and diversified, they can negate the excessive risk from such events. And the good news is the segments are recovering well. All in all, healthcare REITs are one of the best REITs out there.