Dividends and appreciation investment are two different forms of earnings on an investment. There can be a good deal of crossover between the two, and REITs offer a particularly unique advantage as an investment vehicle that provides returns in the form of both dividends and appreciation.
What is a dividend?
In real estate investing, dividends are typically in the form of renters’ payments. Dividends are the net cash flow that the property produces above all of its costs. Many multi-unit properties are considered “cash flow properties” because they provide income or cash flow in the form of dividends.
What is appreciation?
As micro and macro market dynamics change, the value of an asset may increase or decrease. Value can also be forcibly created through investor actions such as improving a property. These increases in value are what we define as appreciation. It’s important to note that appreciation is not income itself, but upon liquidation of that asset, your realized gain is considered income driven by appreciation.
Real estate dividends with simultaneous appreciation
Real estate as an asset class offers an incredible opportunity to collect steady dividends while also simultaneously capturing appreciation. If you buy a multifamily unit and are profitably renting it out while the neighborhood that it is in increases in value – you’ve hit the jackpot. In many cases, such as value-add multifamily, appreciation gains can be greater than dividend payments, though appreciation gains happen on a longer timeline. Combined, they can provide a massive return on investment.
REITs provide streamlined access to dividends and appreciation
REITs provide investors with easy access to simultaneous dividend and appreciation returns. Investors buy shares of the REIT’s fund which holds all of the individual real estate assets. Those shares appreciate in value as the value of the overall property portfolio increases in value. Investors who hold shares are also granted dividend rights, and since REITs distribute at least 90% of their taxable income, those steady dividend payments can be substantial.
With a professionally managed REIT like Upside Avenue, investors see appreciation and dividend earnings without the hassle of acting as a landlord. Since you have your money in a fund rather than in a single property, the risk is spread out across many properties. And with the increased liquidity offered by a REIT, it’s a financially sound decision for many investors.