Real estate investing is a proven means to grow your wealth, and secure your financial future. Holding property offers many benefits including capital appreciation, cash flow, tax advantages. While these are all wonderful elements to any portfolio, some investors might find real estate to be too much hassle. Relative to stocks and bonds, real estate has a relatively high barrier to entry.
While these are reasonable concerns, you shouldn’t let them deter you from adding real estate assets to your portfolio. Investors who are interested in taking advantage of this asset class with a more hands-off approach might find REITs to be a viable option. REIT stands for Real Estate Investment Trust. A REIT is a company that holds and manages commercial real estate assets like apartment buildings, office spaces, and shopping plazas. Similar to mutual funds, REITs get their funding from a pool of investors like yourself. With industry veterans like Katharina Otto-Bernstein now working in this sector of the business, it’s a good idea to learn how a REIT might benefit you.
Guaranteed Cash Flow
As mentioned before, real estate offers a number of opportunities for you to grow your wealth. While holding physical real estate offers tax advantages and can protect your wealth from inflation, capital appreciation and cash flow are the most direct means to make money in real estate. Cash flow in the real estate world primarily comes from rental property income. However, REITs also create cash flow by paying dividends to their investors on a monthly or quarterly basis. These dividends can often yield considerable amounts based on their trading price. REITs are one of the best assets classes to draw income from.
While holding physical real estate comes with many obvious benefits, many investors are uncomfortable with how illiquid it is. Should you ever need to extract cash from your property holdings, your only options are to sell the property or borrow against it. Selling your property can be costly, and time-consuming. Additionally, you will be subject to the local market conditions at the time. Borrowing against any property you hold can be done strategically, but you more than likely wish to avoid debt. REITs give you exposure to the world of real estate while allowing you to liquidate a portion of your assets should you need to.
Holding physical property comes with a slew of responsibilities. Aside from any payment obligations you have, you’ll also need to keep maintenance, utilities, and management in mind. These tasks can be costly in terms of time and money. If you don’t have the resources to handle them all, then REITs might be a better investment vehicle for you. A REIT will give you exposure to real estate without burdening you with administrative and financial obligations.
A diverse investment portfolio is critical to financial wellness. Whether you’re interested in a cash-flowing asset class or simply looking to start your journey in real estate, investing in REITs is a wonderful place to get started.
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