Investing in REITs pro and cons. The first REIT I ever heard of is a company I still have money in called Fundrise which lets you get started owning a small part of many different types of real estate for only $100. This allows me to own different pieces of real estate all over the country without having to buy a home. It is a great way to get involved in real estate without shelling out a LOT of money and then having to handle renters. So let’s deep dive into this subject to see if REITs are for you.
These ideas are based on my personal experience and opinion and should not be considered professional financial investment advice. Furthermore, the ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
- Investing in REITs pro and cons.
- Is it worth investing into REITs?
- Are REITs a good investment in 2023?
- How long should you hold REITs?
- Can you become a millionaire with REITs?
- How do beginners invest in REITs?
- What are the disadvantages of REITs?
- Is it hard to sell a REIT?
- Pros and cons of investing in REITs
- 5 steps to Prosperity
- About Dwight Scull
Investing in REITs pro and cons.
Real Estate Investment Trusts or REITs are a way to invest in real estate without saving 20% for rental property because in this market who can do that?
The pros of REITs are that you can own a small percentage of real estate without having to find renters, pay for a new roof or plunge a toilet at 2 am.
The cons of REITs are that may not always be able to liquidate your money quickly (I know they say you can but the fine print says you can’t). Also, the management fees on a REIT can be quite high because they need to charge a fee to keep renters in the property and save for big expenses that can occur in properties.
Investing in REITs are a long-term hold plan and should be held for years.
Is it worth investing into REITs?
Really depends on many factors. REITs have the ability to pay out good dividends and are a great way to boost your diversification in dividend investing.
Dividends are yearly or quarterly payments for those that own a piece of the asset. So in the case of stocks, something like Microsoft or AT&T will pay you a quarterly amount for each share you own. REITs are no different. They will pay out a portion of their profits as a dividend quarterly.
If you are into growth stocks then REITs may not be the best for you. But real estate is more stable than growth stocks and typically is a safer investment. Therefore, the risk is lower so the reward is lower.
See REITs as a way of diversifying your investments from stocks and bonds and into real estate.
Are REITs a good investment in 2023?
Given the uncertainty of the housing market investing in a REIT that focuses only on residential properties that they haven’t held since 2021 then your money is probably better invested elsewhere. The bond market is making a crazy comeback at the end of 2022 and should be on track to give high payouts because of the Federal Reserve continuing to raise the base interest rate.
It isn’t a good time to buy a home for a rental property right now. The rates are just too high to make a profit, especially when a bond will match the returns with a LOT less work.
How long should you hold REITs?
You should hold on to a REIT for a very long time. The advantage of REITs is that if they are invested in large residential (think apartment buildings) the properties in your investment will be paid off and new ones will be added. Therefore, you are always diversified in different parts of the country, thus reducing the risk of holding property. I would hold onto a REIT as long as they make sense in your portfolio. So if they are providing good dividends then it would be worth holding onto well into your retirement years.
Can you become a millionaire with REITs?
Technically, you could become a millionaire with almost any investment strategy if you worked it over the long term. If your question is whether or not holding REITs is a quick path to becoming a millionaire, I would say no. The fastest path to becoming a millionaire is meeting a need that a lot of people have and creating a service or product that meets that. Then marketing and selling that service or product at scale. The second fastest path is to deep dive into real estate and look into owning as many rentals as you can, keeping in mind that real estate has some real risk if you buy the wrong property or get the wrong tenants or both.
How do beginners invest in REITs?
There are two ways to invest in REITs.
The first is to find and invest in a private firm like Fundrise and choose one of three different types of real estate investing. You can get involved for as little as $100.
The other option is to find REIT funds in your retirement account (401k / IRA for example) or in a private trading app like Robinhood. One example of a fund is Vanguard’s US REIT Fund. Click the link to do your own research on this fund.
What are the disadvantages of REITs?
REITs are funded by individual investors like you. So in order for them to buy more property they need people to buy into the REIT. Because of that, it isn’t always easy to liquidate all of the money from your REIT quickly. There may be limits placed on how much you can withdraw in a given month or another time period. Investing in a REIT is a long-term investment. The other disadvantage is that some REITs have high fund management fees. So if you are more concerned with growth then I would suggest you pass on REITS and invest in index funds that meet your investment risk. If you need more help hire a financial advisor (preferably a Fiduciary as they legally need to provide you with the best financial information for you).
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Is it hard to sell a REIT?
It can be hard to sell a REIT if the housing or commercial property market is down. If that is the case I would suggest leaving the money in the REIT if possible. REITs aren’t like stocks where they can seemingly be sold in seconds. To be fair if there is a stock that is dropping rapidly in the price you would have a hard time selling it as well. Every time you sell a stock you need a buyer.
This seems like a hard concept but if you had a couch for sale and no one wanted it then you couldn’t sell it. You would have to either hold onto it until someone buys it from you or basically dump it and count it at a loss. In the case of a stock or REIT you can’t sell then it would just sit in your account making you money or going to $0 in value. This is where REITs are safer than stocks because the property will always be worth something eventually.
Pros and cons of investing in REITs
We have covered the pros and cons of investing in REITs.
They are a safer place to diversify your holdings. I would view them as a long-term hold for your money to grow a little but really pay you dividends in the long term. They have higher management fees so may not be the best place for everyone to put their money. As always consult a financial advisor to see what is best for you in your specific situation and with your specific risk tolerance.
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About Dwight Scull
I have been married to my wonderful wife, Rebecca, who puts up with me since 1999. I am a proud father to my Gen Z, son, and daughter-in-law. Grandfather to my favorite granddaughter who was born in 2021.
I lost my mom, father-in-law, and 12 others in 2013 and was DEEPLY in debt. I started reading and watching all the financial info I could find.
I chipped away at my debt and went from a negative $105k net worth having one home paid off, no credit card debt, and saving/investing 45%+ of my gross salary.
I used these daily habits to lose 100 pounds and keep it off.
I believe that you can overcome any challenge you face if you just take small daily actions and be consistent with them. It is how you will be financially successful.
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