Real Estate Investment for Beginners: How to Invest in REITs

It turns out that millennia are not as obsessed with crypto as we thought.

According to a new Bankrate survey, more than a third of millennials say that real estate is the best way to invest money they will not need for at least 10 years, plus than the share of surveyed millennials who prefer stocks, savings accounts and certificates of deposit (CDs), gold, bonds and cryptocurrency.

Real estate can be a very lucrative investment at any age, but usually requires a huge commitment of time and a lot of money – or a very good credit – to get started. A real estate investment trust (REIT) can be an easier place to start for millennials with less money to spend. REITs are a good option to diversify an investment portfolio as they represent a completely different badet clbad than equities and bonds.

A REIT will provide exposure to the real estate market without the time and expense of purchasing a property to be managed, repaired or sold. Equity REITs, the most common type of REITs, allow investors to pool their money to finance the purchase, development and management of commercial real estate generating income. A typical REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels or shopping centers.

When the REIT receives rental income from its properties, at least 90% of these profits are returned to investors in the form of dividends, which are then taxed as ordinary income. You can invest in REITs in the public or private market.

If you want to keep your investment liquid, stay true to the exchange-traded REITs. You can buy individual stocks or invest in a mutual fund or exchange traded fund (ETF) that holds REITs through a brokerage company, IRA or 401 (k).

In addition to quarterly or monthly dividend control, investing in REITs has another advantage: the potential for long-term capital appreciation. If the real estate market you are investing in is gaining value, your shares may also – just like owning shares in a publicly traded company. Between 1978 and 2016, publicly traded US equity REITs generated an average annual return of 12.87%, compared to 11.64% for equities. However, like any investment, returns are not guaranteed.

If you are ready to part with your money for better returns, consider investing in the private real estate market through an online broker such as Fundrise.

Fundrise helps you invest in real estate projects in the United States without having to manage them. Investors can choose a portfolio in which to invest based on their goals – additional income, balanced investment or long-term growth – and earn dividends quarterly. Fundrise says its platform is ideal for investors with a time horizon of at least five years.

Related cover of How to do it all: Money: