Diversity is one of the watchwords when it comes to investing.
As a result, it’s not very surprising when it comes out that someone wants to diversify into asset classes beyond stocks and bonds. One of the most popular asset classes to move into is real estate.
However, it can be difficult to invest in real estate. Owning property for investment can be expensive and time-consuming. Not everyone is cut out for it. Besides, you might not have the capital available to invest in something that is somewhat illiquid.
Even if you decide not to buy property, though, you can still invest in real estate. Real Estate Investment Trusts (REITs) make it possible for you to gain exposure to real estate without actually buying property.
What are Real Estate Investment Trusts (REITs)?
REITs are sometimes described as mutual funds or ETFs for real estate. Basically, REITs invest in real estate and the collection is traded on major exchanges like stocks.
This is a liquid way to invest in real estate since you only have to sell your shares of a REIT to liquidate. You don’t have to try to sell the property. Additionally, because REITs invest in more than one property, it’s possible for you to enjoy a measure of diversity.
REITs often invest in specific types of real estate. So you might get a REIT that focuses on commercial properties, like retail. It’s also possible to find REITs that invest in mortgages, apartment complexes, health care facilities, and other types of properties.
It’s also possible to add geographic diversity to your portfolio with the help of international REITs. Plus, there are REIT ETFs, which can further enhance diversity. But it’s important to be
Plus, there are REIT ETFs, which can further enhance diversity. But it’s important to be careful of collections of collections, which is what a REIT ETF is essentially.
If you are interested in adding real estate to your portfolio, a REIT can be a cost-efficient way to do so. Because you can buy shares on the stock exchange, it’s possible to use smaller amounts of capital. You can even use dollar-cost averaging as part of your efforts.
Making Money with REITs
When you buy property, you hope to make money from it by holding onto it until you can sell at a profit. Or you try to make money by renting out the property and earning income from tenants.
When you invest in a REIT, you can earn money from the appreciation of the shares when you sell. However, REITs also pay dividends. In fact, they are required by law to have dividend payout ratios of at least 90%. As you can see, it’s a good reason for many investors to consider them. Income investors like REITs because it’s a way for them to receive dividends, include real estate in their portfolios, and do it without the need to make a big property purchase.
On top of the generous dividends, many REITs have DRIP programs. That means that you can have your dividends reinvested automatically. For someone in the building phase of the portfolio, this can be a good way to increase the number of shares held.
Do Your Research
You do need to be careful when investing in REITs, though. The reality is that, like investment, REITs can lose value. In fact, they didn’t do too well during the crash of 2008. However, some REITs have been improving in value since then.
It’s important to carefully consider any investment you make, whether you invest in real estate, stocks, bonds, or some other asset class. REITs can be a great way to add real estate to your portfolio with an asset class that isn’t tied to stocks or bonds.
Plus, REITs are relatively inexpensive. If you have a brokerage account, you can trade buy REITs and add them to your portfolio. No need to have a large amount of capital to get started.
Just make sure that your portfolio asset allocation makes sense for you. Don’t go overboard with REITs (or any type of investment). You want to make sure your investment choices are in line with your long-term financial goals.