A significant percentage of Americans currently believe that the real estate industry is the best long-term investment opportunity available. For those interested, your easiest way to tap into the market might be through real estate investment trusts (REITs).
A recent survey by Gallup revealed that 36% of Americans view real estate as the most favorable long-term investment option. This finding is quite intriguing considering it surpasses the percentages of individuals who favored stocks or mutual funds (22%), gold (18%), and savings accounts or certificates of deposits (13%).
The report showed that the fewest adults surveyed believed in cryptocurrency or bonds as quality long-term investments, with each at 3% and 4%, respectively.
1,001 U.S. adults participated in the survey from April 1-22 via telephone interviews.
Since the most significant agreement has been on real estate for long-term investments, starting with a REIT is a great idea. Stacy Francis, certified financial planner, president, and CEO of Francis Financial in New York City, attributes the reason for beginning with REITs as preferential since they have a “low barrier to entry.”
REITs are publicly traded companies that invest in various forms of commercial real estate or residential properties that produce income. You can often purchase shares of REITs like you buy a stock or purchase shares of a REIT mutual fund or even an exchange-traded fund. “You can invest in some of these for as little as $25,” stated Francis.
“No one gets super emotional about stocks,” she continued, touching on why real estate is a popular investment option among many Americans. “But individuals definitely get emotional about real estate.”
Some view real estate as a legacy to pass down to their kids, with the hope their kids do the same in the next generation. “Instead of giving them a portfolio of stocks, I want to give them a house that is physical and they can use,” said Francis.
However, purchasing a property and taking on the role of landlord requires a substantial investment of money and time. “It’s not easy being a landlord,” said Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts. He continued, “There’s far more to it than just getting a monthly check.”
When you purchase a property and transform it into an investment, you have undertaken the responsibility to manage the property, service it, and insure it. Ahmed explains that it takes money regardless of your method, whether you hire someone to take care of the property or do it yourself.
Experts add that REITs may also give people the chance to diversify. This is because you are exposed to hundreds or even thousands of various properties and regions, depending on the company.
You can also invest in various real estate properties, including office buildings, warehouses, and shopping malls. However, it’s important to remember that if a region or sector you invest in experiences devaluation, your portfolio’s price decline is mirrored.
Francis says, “If there’s a REIT and it’s investing in shopping malls across the country, and shopping malls are not doing well… You’re going to feel that. You’re not going to be protected.” She explains that to tap into the real estate market for a long-term investment, you must “really research these funds.”
Francis adds that REITs should contribute to the diversification of your portfolio. However, they should never be all of it (the recommendation is about 25%). Knowing how REITs will affect your personal tax situation is vital, as they often pay out upwards of over 90% of their profits in dividends.
“It’s as if those dividends came to you and your paycheck at work,” Francis explains.
Ahmed also suggests remembering that “Asset location matters.” Experts suggest that if you don’t need the extra income, you might consider adding the REIT to a tax-sheltered account.
