Learn to Unlock Passive Income by Investing in Real Estate Investment Trusts (REITs)

Did you know that real estate is considered the greatest wealth creator in the world? Whether you own a commercial real estate empire or have a paid-for house accounting for a bulk of your net worth, anyone from the ultra-wealthy to the middle class can benefit from real estate.

News flash! It’s no secret that the cost of real estate continues to push the dream of owning a piece of property out of reach for many Americans. If traditional real estate is out of reach or you’re looking for other ways to diversify your income, investing in REITs might be the investment vehicle you’ve been looking for!

See how you can own real estate and get paid from it without shelling out a large down payment or locking yourself into a mortgage.

What is a REIT & How Does it Work

With wealthy Americans building substantial wealth using real estate, the government set out to make the playing field even for all investors. Congress established Real Estate Investment Trusts (REITs) in 1960. REITs allowed small investors to invest in income-producing assets. Thanks to REITS, even you can grow your wealth the same way as the wealthy.

How do REITs work? REITs are a collection of real estate holdings split into partial shares that investors can purchase. These shares function just like stocks, with the performance of the share price dependent on the management of the real estate holdings. To qualify as a REIT, a company must meet the following requirements:

At least 75% of the company’s revenue must come from real estate activity, including rental income, Real estate interest, and selling real estate assets.

At least 75% of the company’s assets must be real estate holdings

The company must distribute at least 90% of pretax income to shareholders as dividends

Common examples of REITs include your local shopping mall, office buildings, data centers, and hotels. These businesses work well for REITs by attracting tenants who sign multi-year leases to provide consistent income.

REITs vs Real Estate Investing - Pros and Cons

REITs are a simplified way of investing in real estate—especially for small investors. Investors experience similar benefits of owning actual real estate without the stress of managing a physical property. On the other hand, there are advantages to owning your own property that you can’t achieve by purchasing a REIT stock. Here are the pros and cons to see if investing in REITs is right for you.

Pros to investing in REITS (compared to investing in real estate):

·       Provide divided-based income

·       It doesn’t require a lot of money to invest in it—some platforms let you invest in REITs with as little as $5

·       More liquid

·       Diversified investment

Cons of investing in REITs (compared to investing in real estate):

·       No real estate equity

·       Fewer tax advantages

·       Slower growth

Tax Benefits of Investing in REITS

Paycheck to Wealth is always excited to discover new ways to keep more money in your pocket through tax strategies. We recommend investors like you to invest in REITs through tax-deferred accounts like a 401k or Roth IRA. These accounts allow the dividend income earned from REITs to grow untaxed until withdrawn. The goal is to withdraw the funds after reaching retirement age when you’re likely to be in a lower tax bracket.

Investors prefer the REIT strategy compared to investing in a High Yield Savings Account (HYSA) or Certificate of Deposit (CD) because the interest earned on HYSA & CD accounts is taxed in the same year it’s earned.

See if this strategy is right for you in a FREE consultation call with a financial advisor.

Best REITS to invest in

You can start investing in REITs today! Look for publicly traded REITs on your online investment platforms like Vanguard, Fidelity Investments, or with your employer. They are also available on popular investment platforms like E*Trade, Robinhood, Acorns, and Betterment.

Investors can rate the best REITs based on their holdings, dividend growth and consistency, and longevity. More seasoned investors can dig into operational fundamentals. Here are a few popular REITs to invest in:

·       Realty Income Corporation (O)

·       Vanguard Real Estate ETF (VNQ)

·       Schwab US REIT ETF (SCHH)

Should You Invest in REITs?

Every investor is different. For some, investing in real estate will help them achieve their financial goals faster. For many early investors, REITs are the perfect introduction to real estate while simultaneously providing a less risky asset to their portfolio.

REITs are attractive to the following types of investors:

·       Long term

·       Smaller investors without access to significant capital for real estate downpayment

·       Investing for income (versus growth investments)

REIT dividends are an excellent source of passive income. However, there are risks associated with every investment (learn how to build a safety net for your investments).

Get Started With Investing in REITs Today

REITs are one of the many investment recommendations we recommend to our clients at Paycheck to Wealth. See if investing in REITs is right for you with a FREE consultation with a financial advisor.

See how you can start earning REIT dividend income today!