Stocks and real estate are known to be two of the largest contributors to building wealth. People often say that it is difficult to invest in real estate due to the high costs and the amount of capital needed to purchase a home, apartment, or property. Chopperman and I plan to own our own real estate empire one day. Right now we’re just invested in REITs (Real Estate Investment Trusts), but in the future, we plan to have much more. To just get your feet wet in the real estate world you can invest directly into REITs, one I’d recommend is the Vanguard Real Estate ETF. If you were to invest in this fund just for owning it you would receive a 3.75% dividend. This fund is up 20% this year, and the dividend it gives is outstanding!! If you are a beginner investor and want low risk this is definitely a fund to look into purchasing.
What Should You Look For in a REIT?
Always look for established growing tenants within the companies portfolio, this means tenants who have successful businesses and who value their consumers. These are companies that are public themselves or have been established for a couple years at least. A good way to judge these companies is by looking at Yelp reviews to see if their consumer is satisfied with their business.
What You Should Avoid?
Avoid REITs with little diversification, or those with much of their money in a business that you have never heard of or understand. Bigger isn’t always better to avoid big companies that are overly diversified. Avoid companies that are not publicly traded they often will take your money and run with it and not give you the return you expected. Make sure you understand the fee and management structure. Non-traded REITs often pay very high manager fees based on the value of assets they manage
What Are Some Things I Should Know?
The longer the average lease contract, the better. A larger dividend yield does NOT mean it is a better investment. There are many types of REITs, know them and do your research before investing.
Benefits of REITs
- No phone calls from tenants at 3 in the morning asking to fix their clogged toilet.
- No upkeep costs such as fresh paint, new doors, new dishwasher, etc.
- Liquidity (being able to sell your REIT with a click of a button and not have to put it on the market and wait for someone to buy it).
- Annual Dividends to make your portfolio even stronger.
My top 10 REITs
- Vanguard real estate II Index Fund
- American Tower Corp
- Crown Castle International Corp.
- Prologis Inc.
- Equinix Inc.
- Simon Property Group Inc.
- Welltower Inc.
- Public storage
- Equity Residental
- Avalon Communities Inc.