For many, the mere thought of investing in the real estate market is intimidating. From determining the most valuable property and location to maintaining it over time, real estate investments can be both time-consuming and expensive. This is especially true for homeowners who are already paying a mortgage and maintaining one property. Fortunately, there are other ways to invest in real estate without holding property. One of the most popular options is known as a REIT.
A REIT, or Real Estate Investment Trust, is an excellent choice for those who want to invest in real estate but do not want to foot the large bill of purchasing and then maintaining an actual investment property, like an apartment complex. This is because an REIT is a company that owns and/or leases income-generating property. This typically includes many different types of commercial real estate, such as offices, apartment buildings, hospitals, hotels and even shopping centers. The company is responsible for the day-to-day operations of the property, while investors can earn a portion of the income generated without the need to finance, manage or maintain the property.
REITs are similar to mutual funds. They are traded like stocks on the stock exchange, and they pay dividends to shareholders.
- Smaller investment cost than purchasing a property
- No managing or maintaining the property
- No property taxes or insurance costs
- Higher yields than other investment types
- REIT’s diversify investment portfolios
- Real estate values are not tied to the stock/bond markets
- No need to sell or rent property
- Interest rate increases can decrease income
- Value of shares can decline when occupancy rates drop
- May not be taxed as investment income
- Non-traded REITs lack liquidity and may require up-front fees
- No ownership of property
- May require account service fees
With REIT’s, homeowners can afford to invest in the real estate market when it may otherwise be too expensive or too unpredictable. While they can be excellent investments, it is important to thoroughly research any investment opportunity before committing. Speak with a lawyer or an accountant to ensure that there are no hidden fees or risks involved with the REIT in question. Likewise, as with any investment, if it seems too good to be true; it probably is.
You can start investing with REITs today, either by buying shares within a brokerage account you already own, or by opening a new one. With relatively low investment minimums, you don’t need to be a millionaire real estate mogul to own a piece of the action. Check out our guide to the best online investing sites so you can start today.
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