While I’m not interested in being a landlord, I can get exposure to it. In the past, my wife and I have considered purchasing a vacation rental.
My decision to avoid renting a vacation home or multifamily property, whether it be a commercial space or a multifamily property, came after visiting many homes and talking to property managers.
As it turns out, there’s a way for me to get exposure to real estate without having to become a landlord, which is by investing in real estate investment trusts (REITs).
A REIT is a company that owns, operates or finances real estate investments and generally pools investor funds to buy properties or finance their purchase. This way, investors can benefit from indirect ownership without having to deal with the responsibilities of owning a property. REITs offer a variety of options, from trusts focused on multifamily rentals, nursing homes, or commercial properties. This allows for a diverse portfolio without the need for extensive research or management.
Erm…Can you remind me what a REIT is?
A REIT is a company that owns, operates or finances real estate investments and generally pools investor funds to buy properties or finance their purchase. This way, investors can benefit from indirect ownership without having to deal with the responsibilities of owning a property.
REITs offer a variety of options, from trusts focused on multifamily rentals, nursing homes, or commercial properties. This allows for a diverse portfolio without the need for extensive research or management.
Earn more dividends with less cash, less time, and less effort
With REITs, you can invest with minimal cash and spend less time investing. The biggest advantage is that REITs tend to regularly pay out high dividends, which is required by law to be at least 90% of annual taxable income to shareholders. This ensures a steady flow of cash to investors. Additionally, REITs tend to have low volatility and a consistent record of providing generous returns. In fact, equity REITs provided an average annual return of 13.5% from 1972 to 2021, which outperformed the S&P 500 return of 13.1% over the same period.
While owning a rental property may also provide similar returns, there are many variables that can affect the value of the property over time. I feel more confident in the steady income and generous returns from a REIT than an individual rental property due to the long track record of consistent performance within this sector.
Investing in a REIT may not be the best choice for everyone, as some people may prefer consistent rental income from a tenant or the satisfaction of finding a physical property to rent out. However, for those who want to avoid the responsibilities of being a landlord, REITs offer a great way to invest in real estate with limited risk and a solid track record of performance.