What Are Some of the Benefits and Risks of Investing in REITs?

The primary benefit of investing in REITs is how easy they are to trade. Compared to traditional real estate investments, REITs are highly liquid. Most types of REITs are regulated by the SEC, file audited financial reports, and offer relatively high risk-adjusted returns that allow investors to maintain a stable cash flow. Another benefit to investors is that investment in REITs allows diversification of different asset classes in an investor's portfolio, which countermeasures the risks to equities or bonds.

However, compared to other investment holdings, REITs have relatively low capital appreciation, and the dividends received from REITs' investment holdings are taxed as regular income. Other risks in investing in REITs include fluctuations in the real estate market. Like other investment holdings, REITs do not provide any guarantee of profit.