When you think of real estate investors, what images come to mind? Wall Street’s Gordon Gekko? The Monopoly Man? Do you picture yourself? Probably not. Most people wouldn’t. After all, it takes truckloads of cash to invest in real estate and it’s just possible for the average person, right?
But wouldn’t it be great if you could start investing in real estate for as little as, say, $30? And what if you could do it in twenty minutes without even leaving home? Impossible, right? Actually, it’s totally possible. And you might have enough left over for a cup of coffee!
A great place to begin investing in real estate is by purchasing shares in a Real Estate Investment Trust (REIT, pronounced Reet). It’s as simple as buying shares in a corporation or mutual fund.
REITs are set up like mutual funds and trade publicly on the stock market. REITs are companies that own, operate or finance income-producing real estate assets. When investors buy shares in a REIT they’re buying into a basket of holdings, as they do with mutual funds. They’re not buying equity in the underlying real estate holdings; rather they’re buying shares in the company that owns, operates or finances the real estate. As a shareholder in a REIT, the investor isn’t investing in a single property. The investment is diversified over several real estate assets.
There are Equity REITs, which own or operate real estate assets, and Mortgage REITs, which originate or invest in mortgages. Equity REITs include: 1) Residential REITs, which invest in residential real estate assets; 2) Office REITs, which invest in office buildings; 3) Retail REITs, which invest in shopping centers and retail properties; and 4) Healthcare REITs, which invest in medical facilities.
Each type of REIT carries its own risks, but they all share a common goal: capture appreciation and generate consistent rental income, which they pass on to their shareholders in the form of dividends.
When you invest in a REIT, you’re getting the benefits (and none of the liability) of being a landlord for the price of a share of stock.
A REIT ETF, or exchange traded fund, is a fund made up of REIT stocks. By investing in a REIT ETF, your real estate investment is spread over several real estate sectors. When you invest in an ETF, you’re buying into a professionally managed diversified portfolio. The Vanguard Real Estate ETF (ticker symbol VNQ), for
example, holds nearly two hundred stocks in the fund. According to the fund’s prospectus, those holdings are spread across eight real estate segments: retail; specialty; residential; office; healthcare; industrial; diversified; and hotel and resort.
U.S. News and World Report recently published 7 Best REIT ETFs to Buy for 2019 online. You can find the article here: https://money.usnews.com/investing/real-estate-investments/slideshows/best-reit-etfs-to-buy.
A few days later, The Balance published The 8 Best REIT ETFs of 2019. Analysts don’t always agree, as was the case here. But there’s some overlap between the lists. You can find that article here: https://www.thebalance.com/best-reit-etfs-4174043.
So, how can you invest in real estate for $30? Actually, you have several options.
At the time of this writing, six of the seven ETFs profiled in the U.S. News article trade below $30 a share. In fact, two of the ETFs on U.S. News’ list trade for less than $20 a share. Oh, and the best part? All but one of the ETFs on the list have an annual yield of more than 4%, and three have annual yields of more than 7%.
As for the Vanguard Real Estate ETF I mentioned earlier, it’s trading today at $86.91 a share, with an annual yield of 4.06%. For the price of one share, you gain investment exposure to eight segments of the real estate market spread over two hundred stocks.
Just like buying shares in a company, when you buy a share or shares in an exchange traded fund (ETF) you own a piece of that fund. And when you buy shares in a REIT ETF, you’re acquiring a piece of a fund consisting of real estate investment trust (REIT) stocks. Your investment in a REIT or REIT ETF makes you a real estate investor.
Buying and selling shares in a REIT or REIT ETF is as easy as buying and selling shares in a corporation or mutual fund. But as with any investment, do your homework before taking the plunge. No one cares about your hard-earned money more than you do. Protect it by doing a little due diligence up front.
I’ve held several REITs in my portfolio over the years, and have shares in two at the moment. One has an annual yield in excess of 7%, the other in excess of 13%.
REITs and REIT ETFs offer shareholders the opportunity to invest in real estate with the convenience, affordability and liquidity of stocks. In fact, if you have a retirement account, there’s a good chance you’re already invested in REITs. They’re a great way to diversify your investment and an excellent addition to your portfolio.
Investing in a REIT is the easiest and most affordable route into real estate investment. It’s a great place to start. And even after you branch into physically controlling real estate, maintain your REIT investments to deepen and diversify – to layer – your real estate holdings.
