REITs allow you to invest in real estate without having to buy your own property. They are very similar to stocks but for real estate!
REITs are a passive, low-capital way to get into the real estate market.
If you want to get into real estate but don't have the capital for a downpayment, or don't want to deal with a property, tenants and other headaches then keep reading.
- Best for: Anyone looking for a passive and flexible investment strategy.
- Up-Front Investment: You can start with any amount. The cheapest REITs have 1 share for less than $10. Don't expect to make much with $10 though.
- On-Going Investment: None, unless you choose to keep adding money to your portfolio.
- Dividend rates are also climbing right now (up to 8% for some REITs).
What is a REIT?
A REIT, or Real Estate Investment Trust, is a form of investing in real estate, similar to stocks.
REITs allow you to get into the real estate market without having to own a property.
Just like you can buy shares in a company like Apple, you can also buy shares of real estate portfolios which are called REITs.
REITs were created in the 1960s by Congress to give every individual a chance to benefit from income-producing real estate investments.
How Does it Work?
There are companies out there that buy lots of real estate and some of those companies create a REIT which can be traded on the stock market.
If you purchase shares of a REIT you will be a very small owner of that real estate portfolio.
There are many REITs you can choose from and some of them cost as little as a few dollars. All of them are some form of real estate properties.
How To Buy REITs
To buy REITs you need to open a brokerage account. There are MANY brokerages that come in all shapes and sizes.
If you’re a beginner, find one that is user friendly, trustworthy and has no commission fees. Here are some popular options by country:
Remember to always do your research before investing.
How Do You Make Money?
If you own shares in a REIT you will receive income in the form of dividends. The dividends are profits from the rental income and appreciation of the properties.
There are many REITs out there but dividends can pay you anywhere from 1%-8% every year. This means you earn money just for being a shareholder, it is truly passive income.
By law, at least 90% of all income earned by a REIT must be distributed to shareholders (you!) which can happen on a monthly, quarterly, or annual basis.
You can also make money from appreciation. For example, if you buy your REIT at $3 it could be worth $5 next year. Obviously, it could also go down in value.
Pros of REITs
- They all have dividends (passive income)
- Doesn't take a lot of time to manage. Set it and forget it
- Real Estate typically performs better than regular stocks and the stock market
- It's naturally a diversified investment
- Let's you invest in real estate without lots of capital
- It's liquid. You can buy/sell/withdrawal your money whenever you want
Cons of REITs
- Long term investment
- Won't make you rich unless you wait decades or have lots of money
- You still don't own any real estate physically
- No investment is a sure thing
The Bottom Line
REITs are a great way to invest in the real estate market without huge amounts of capital.
It's also not how you're going to get rich quick it's definitely a long term strategy. However, by getting dividends it is a true source of passive income which makes it a great option to invest for your future.