Contributor, Benzinga
Updated: August 2, 2021

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Real Estate Investment Trusts (REITs) generally cover a specific category of real estate. Retail, Office, and Industrial REITs are popular ones. However, Diversified REITs allow you to own portfolios in more than one property type.

What are Diversified REITs?

Diversified REITs own, manage, and even develop 2 or more commercial real estate property types. This type of equity REIT may own apartment buildings and office buildings, or retail properties and industrial buildings - or any other combination of commercial real estate. They then rent out the space and collect money from their tenants.

The types of REITs that you decide to invest in will determine the real risk factors and benefits you face. Understanding the state of the economy and the cyclicality of each property type as well as the lease terms associated with each is a big factor in your profit potential.

Benefits of Diversified REITs

Again, the benefits will range largely depending upon your combination of property types. For the most part though, a healthy economy will bring great profits regardless of the REIT type. A booming housing market, people spending money on retail and travel, as well as an uptick in on-line shopping and a need for office space will do wonders for all types of REITs.

When the economy shifts, some REITs are more recession resistant than others. Generally, property types such as retail and industrial buildings have long term (5 to 10+ years) leases in place with rent increases built right in. This helps to maintain a steady and predictable stream of income. Other property types like hotels are more at risk in times of economic hardship because they collect their rent on a daily or weekly basis - with no guarantee of travelers or paying guests.

Risks with Diversified REITs

Similar risks run with pretty much all REITs, regardless of property type. The main ones are:

●     Interest Rates. When interest rates rise, it puts stress on REIT stock prices. Investors expect a higher reward when buying into income - based assets. Rising interest rates can have less than desirable effects on REIT investing.

●     Oversupply. The risk of oversupply goes hand in hand with the economy. When the economy is doing well, more buildings are built to accommodate a rising need. The downfall to that is oversupply when the economy is doing badly. This results in poor pricing power and too many vacancies to get a good return.

Diversified REITs are great for people who want to dabble in more than one real estate property type, while understanding the risks and benefits of the types they choose.

All Diversified REITs

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REIT Alternatives

REITs provide a low-cost and simple way to invest in real estate. However, they aren't the only option available to generate passive income through real estate with a low minimum investment.

Real estate crowdfunding offers investors the ability to decide which properties they want to invest while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms:

  • Diversyfund
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    Best For
    Low Cost Real Estate Investing
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  • CrowdStreet
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    Accredited Investors
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  • Arrived Homes
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    Best For
    Low minimum investment
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  • Streitwise
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    Best For
    Small Account Real Estate Investing
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  • Groundfloor
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    Best For
    Non-accredited Investors
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  • Yieldstreet
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    Best For
    Diverse range of alternative assets
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