What are Real Estate Investment Trusts and How Do I Invest in Them? (REITs)

Real estate has long been seen as a relatively safe and rewarding investment, but putting money into it isn’t always straightforward. For starters, it’s often easier said than done to save for a down payment. You’ll also need a lot of money to do renovations for flips or to get your property ready to rent. However, for many people, there is a method to invest in real estate without having to save for a down payment or manage a property. Let me introduce you to Real Estate Investment Trusts (REITs).

A real estate investment trust, or REIT, is a company that owns, manages, or funds real estate. Investing in a REIT is a simple method to diversify your real estate portfolio while also gaining access to historically high REIT dividend payouts.

How can I invest in a real estate investment trust (REIT)?
Individuals can purchase REIT shares, which are traded on major stock exchanges, in the same way they would any other public stock. Shares in a REIT mutual fund or exchange-traded fund are also available to investors (ETF). In fact, REITs are used by nearly 145 million Americans, with many of them investing through mutual funds and ETFs in their 401(k)s, IRAs, the Thrift Savings Plan (TSP), and pension plans.

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The performance of stock markets and the property sector can effect investments in real estate securities (including securities listed by Real Estate Investment Trusts (REITs). Changing interest rates, in particular, can have an impact on the value of assets in which a property firm invests. Investing in real estate securities is not the same as investing in real estate directly.

Why should REITs be considered by investors?
REITs give both large and small investors access to the real estate market. This is critical since direct property investments are costly and frequently illiquid, making them difficult to sell. A REIT, on the other hand, can be purchased and sold on a stock exchange, giving investors the liquidity they need.

Opening a brokerage account, which normally takes only a few minutes, is all it takes to get started. Then, just like any other stock, you’ll be able to purchase and sell REITs. Because REITs pay such substantial dividends, it’s a good idea to hold them in a tax-advantaged account like an IRA so that payments can be deferred.

If you don’t want to trade individual REIT stocks, an ETF or mutual fund that vets and invests in a variety of REITs can be a good alternative. You obtain immediate diversification as well as a reduction in risk. These funds are available through a variety of brokerages, and investing in them requires less homework than studying individual REITs.

Final thoughts…

You should always evaluate your financial goals and how your next financial move will help you get closer to that goal, just as you do with any other financial step you decide to take. Investors who are easily discouraged by volatility may be hesitant to invest in a publicly traded REIT that follows the stock market’s highs and lows. At the same time, an investor who desires immediate access to their money should avoid investing in something that keeps their money locked up for long periods of time.

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