Data Center REITs
Many people want to invest in tech, but they are scared of the risks associated with large tech companies.
If you are like this, you should consider investing in data center REITs.
Real Estate Investment Trusts (REITs) are companies that own and manage real estate.
There are many types of income-generating real estate. They include office real estate, retail real estate, and healthcare real estate.
But, of all these options, data center real estate has a promising future.
What is a data center?
A data center is a commercial facility that houses servers and other computing and storage equipment. These facilities provide security, cooling systems, and reliable power supply to their customers.
Today, more than ever, businesses use the internet for day-to-day tasks. Most businesses now have websites and other forms of digital presence. Others like E-commerce companies use the internet for their core operations.
In the coming years, more internet-enabled vehicles and devices will hit the market. Artificial intelligence is also expected to grow from $11 billion today to $90 billion by 2025. All these devices and processes will require more connectivity infrastructure.
The new 5G technology is being introduced to the market. The technology transfers data at unprecedented speeds. The fusion between 5G, edge computing, and IoT devices will result in heavier internet traffic and more money for the subsector.
The benefits of investing in REITS
Long term investment
Time is a vital ingredient for building wealth, and real estate tends to increase in value over time. If you plan to build wealth over a long time, investing in REITs can help you achieve your goal.
If you invested $1000 in Equinix 10 years ago, your investment would be worth more than $10,400 today!
Tax benefits
The IRS treats income from REITS as pass-through income. What does this mean for you as an investor?
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You pay fewer taxes!
Corporations like Microsoft pay corporate tax on the profit they generate. After the corporations distribute profit to shareholders, the shareholders are taxed again as individuals. Summarily, income from corporations is taxed twice.
The IRS treats Real Estate Investment Trusts like LLCs and partnerships. The IRS sees income from them as personal income and taxes it accordingly. When you invest in pass-through businesses, you pay less money to Uncle Sam.
How to Invest in REITS
You can invest in REITs directly or through ETFs and index funds.
These are the five data center REITs ETFs traded on U.S. stock exchanges.
Equinix (NASDAQ: EQIX) $38.8 billion
Digital Realty Trust (NYSE: DLR) $24.7 billion
CyrusOne (NYSE: CONE) $6.8 billion
CoreSite Realty (NYSE: COR) $4.2 billion
QTS Realty Trust (NYSE: QTS) $2.5 billion
source: millionacres
Risks associated with REITs
The data center real estate market looks very promising. As a result, many investors may try to get in, and the market may become saturated.
Data center REITs may have to compete with large businesses like Amazon. Amazon, through AWS, rents out processing capacity to other corporations. Therefore, large corporations may saturate the market and make it less profitable.
This article is not financial advice. It was written to educate you.
Contact your financial advisor for investment advice.
