Investing in real estate doesn't always mean buying and selling property. Many REITs, or real estate investment trusts, trade on major stock exchanges, making them accessible to everyone. Investing in a REIT is like investing in any other stock, so buying in is much more affordable than purchasing property.
Because REITs are traded on the stock market, it is very easy to start investing. If you have a 401(k) or other managed investments, you may already have a REIT in your portfolio. Contact your broker to see what the best way to diversify your investment portfolio is. There are several different REITs available and it isn't uncommon for investors to have more than one in their portfolio.
What is a REIT and How Does It Grow?
REITs often include a wide range of property types. They can include residential and commercial property and some will specialize in a specific type or location. Although REITs are traded on NASDAQ, they may include international property. Each REIT should list their investment portfolio online, allowing you to do some research before investing.
REITs make money in one of two ways. Most REITs lease the real estate they own to collect regular income. Mortgage REITs, also called mREITs, finance properties and make money off of the interest. This income is collected and most of it is returned to shareholders in the form of dividends. When REITs are properly managed, they tend to yield high dividends to stockholders.
Things to Know Before Going In on a REIT
While REITs make revenue and distribute earnings using a simple system, investing in one is like investing in any other stock. Investors need to conduct research on who is managing their REIT and understand how their investment is going to make money. REITs are known for being reliable investments; however, poor management or shifts in the market can cause overall stock values to drop.
You'll also see a lot of differing opinions on what the best REITs for 2019 are. This is because some investors prefer reliability while others are more focused on growth. The best way to find a REIT that is right for you is to research the real estate market and try to get a good idea of which sectors will be the most profitable in the future. Do you think investing in commercial real estate in the US is a good idea or do you think investing in vacation home rentals is a better plan?
There are REITs for every type of investor available. If you are trying to narrow down your choices, remember that diversifying your portfolio is an option. Talk to your broker about potential REIT investments and discuss your findings. They may be able to help you decide on which REITs will work best for you.
What Can You Gain from a REIT?
REITs are a popular investment. While you may need to conduct some independent research before you invest, most REITs don't require daily monitoring. They tend to be a lot less volatile than individual company stocks. This significantly lowers the risk associated with them. This makes them a great choice for people who do not have time to constantly monitor their portfolios or day trade.
Another benefit of investing in REITs are the dividends. Most REITs offer quarterly or monthly dividends based on their earnings. When the REIT performs well, users are often issued bigger or more frequent dividends.
The cost of entry on a REIT can be fairly low. While there are well-established REITs trading at over $20 per share, there are several investment opportunities available for $10 or less. Depending on your broker's commissions, minimum purchases, and fees, you may be able to afford a regular buy in. This makes REITs a very practical choice for those slowly building their portfolio.
You don't need extensive experience managing a stock portfolio to appreciate a REIT. These simple investments can be a great way to diversify your portfolio. You'll be able to collect regular dividends, allowing you to slowly grow your portfolio.
While there are many choices available when it comes to REITs, don't feel like you need to make a quick decision. Take your time researching REITs and choose one or two that suit your needs.