Real estate investing has proven itself to be a lucrative and sought after money-making opportunity.
Money can be generated in many ways—rental income, long-term appreciation, buying low, selling high and using leverage are just some of the ways real estate can produce a profit. Individual investors can choose to purchase a property on their own or with a partner. Investors can even invest without actually buying any property at all, cue in real estate mutual funds, ETFs and REITs.
Today we’ll focus on REITs.
REITs, short for real estate investment trusts, are companies that own and operate income-producing real estate assets, and they’ve picked up some major steam in the last decade. This is mainly due to tech advances and newer crowdfunding laws innovating how capital can be raised.
Below, we’ll go through the top 7 benefits of investing in a REIT and how everyday investors can get started in order to build a lasting wealth of their own.
1. Potential for High Returns
Let’s be honest, everyone is looking for high returns, and REITs seem to do the trick. Investopedia reports that the S&P 500 Index's average annual return over the past 20 years is approximately 8.6%, while REITs have shown an average annual return of 11.8%.
Adding alternative investments, such as real estate, to your portfolio provides you with diversification.
REITs allow investors to diversify their portfolio without the hassles of directly acquiring a property.
Diversification mitigates the volatility we see in the stock market. Due to its low correlation to the stock market, real estate can help cushion loss when other parts of your portfolio may be under-performing.
3. Lower Barrier to Entry
REIT investing appeals to everyday investors because you don’t have to pay the upfront costs typically associated with purchasing an investment property on your own. While some REITs require investors to be accredited (having an earned income that exceeds $200K or net worth over $1M), others such as DiversyFund’s Growth REIT have minimums as low as $500, making it easy for everyone to get started in real estate.
4. No Expertise Needed
One of the best parts about REIT investing is that you do not need to be a real estate expert. You are letting the experts do the work for you. That being said, you should choose the sponsor you want to work with carefully. Look for sponsors who have the experience, a solid track record of returns, and don’t charge unnecessary fees to investors.
5. A True Passive Investment
REIT investing appeals to many because it doesn’t have to be a full-time job in order for you to reap the financial benefits. Investors don’t need to commit anything other than investment capital—no time spent researching comps, no running numbers, no driving to properties.
6. Tax Benefits
REITs are a tax-advantaged alternative investment and its benefits got even better with tax reform.
Since REITs are required to pass 90% of its profits to investors, they typically don’t owe any taxes. This means more money ends up with the investors in the form of dividends. REIT shareholders can also deduct that 20% of pass-through income from REITs.
7. Inflation Hedging
Investors are always looking to hedge against inflation. Nobody wants to lose the purchasing power of their cash.
REITs are by nature a natural hedge against inflation.
This is, simply put, because when prices go up, rents typically do too. Real estate provides a solid stream of income even in times of inflation.
There are many reasons REITs are a top choice for retail and institutional investors alike. These alternatives help diversify portfolios and give an added layer of protection that many seek in volatile times. However, it’s never a one size fits all decision. Before embarking on your investment journey, you should assess some key details such as how much time, money, risk, and involvement you are comfortable with.
DiversyFund’s mission is to empower everyday people looking to build wealth for their futures. DiversyFund is currently offering investments in multifamily real estate for as little as $500, allowing the general public to invest like the 1%.
Visit Diversyfund.com for more information.