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17 February, 2020 / Mon, 3:46 am

Date: 30.07.2019.

REIT - passive real estate investment

You won’t have to worry about selling a property or keeping up with tenants

REIT
REIT

If you want a more passive real estate investment where you won’t have to worry about selling a property or keeping up with tenants, a REIT might be the right strategy for you.

Overview

  • Up-Front Investment: Get started with as little as $500
  • On-Going Investment: None, unless you choose to continue adding more money to your portfolio.
  • Return on investment: You can sell whenever you want at the current stock market price for your REIT. This gives flexibility and the chance for big returns.
  • Dividend rates are also climbing right now (up to 8% for some REITs).
  • Best for: Anyone looking for a passive and flexible investment strategy.

What Is REIT?

A REIT, or Real Estate Investment Trust, is a form of passive investment. If you want to get into REIT investments, you’ll have to purchase shares of a REIT through any stock exchange platform. This will usually involve a brokerage fee of some sort (this will vary depending on the platform you choose), but that fee is just a one-time expense. You can put as much into REITs as you choose.

REITs were created in the 1960s by Congress to give every individual a chance to benefit from income-producing real estate investments. REITs allow you to get into the real estate market without having to own a property.

Just like you can benefit from a corporation’s success by buying shares in their company, you can benefit from a piece of income-producing real estate by being a stockholder of a REIT. When a company buys income-producing property, in order to qualify as a REIT and become tradeable on the stock market, they need to meet a variety of criteria.

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 will need to pay taxes on these dividends.

The Pros

The biggest pro of investing in a REIT? It’s passive.

You can begin profiting from real estate through a REIT without the need to purchase or own your own property. This lowers the up-front (and on-going) investment and, therefore, lowers your risk.

You can invest as much as you are comfortable with and hold on to it for as long as you like. If you need to get your money out quickly, you can sell it on the stock market for the current share price.

Holding on to your REIT will allow your investment to continue to grow through the years and, meanwhile, you’ll be enjoying dividends. The rate will vary based on your REIT and its success, but if you put in $1,000 and saw a 5% return the first year, that means you would earn $50 for the year. Nothing that will get you rich, but keep in mind that $1,000 is still there to keep growing in value the longer you leave it on the market.

For instance, if you buy in at $1,000/share but the price doubles in the next decade, you essentially have $2,000 (if you choose to sell) along with the dividends you’ve earned in the meantime. REITs are a great way to stow away your money while earning higher rates compared to any typical savings account, if you trust the market will stay strong.

The Cons

The biggest con with REIT is shared with all types of investments: you may not get out what you put in. If you choose to sell your REIT at any point, you’ll be selling it at the current market price. That may be really high, which is great, or really low, which wouldn’t be so great.

Summary

Of course, being such a low-risk investment strategy, there's also a lower chance of return. This should really be seen as a long-term type of investment. You wouldn't want to buy 10 shares just to try and sell them tomorrow. REITs are something you should hold on to for the future with the hope that the value of your shares will continue growing as you enjoy small dividends in the meantime.

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