Some Americans believe that real estate is the best long-term investment. If you're among them, real estate investment trusts, or REITs, may be the easiest way to take advantage of the market.
About 36% of Americans surveyed rated real estate as the best long-term investment, more than stocks or mutual funds (22%), gold (18%) and savings accounts or certificates of deposits (13%), according to a recent study. A poll conducted by Gallup, a global analytics and consulting company.
The report found that fewer adults surveyed believe bonds and cryptocurrencies are good long-term investments, at 4% and 3%, respectively.
The company surveyed 1,001 American adults through phone interviews from April 1 to 22.
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For those people who see long-term investment potential in real estate, REITs can be a great way to get started because they have a “low barrier to entry,” said Stacy Francis, certified financial planner and president and CEO of Francis Financial in New Delhi. York City.
A REIT is a publicly traded company that invests in various types of income-producing residential or commercial properties. In many cases, you can buy publicly traded REIT shares as you would stocks, REIT mutual fund shares or exchange-traded funds. REIT investors typically make money through dividend payments.
Some “you can invest in for as little as $25,” Francis, a member of the Council of Financial Advisors, told CNBC.
“Nobody gets too emotional about stocks.”
Francis said real estate is a popular investment option among some Americans because it can stir emotions and feelings, unlike stocks and bonds.
“No one feels very emotional about stocks,” she said. “But people definitely feel passionate about real estate.”
Some people consider it an inheritance that they will give to their children.
“Instead of giving them a portfolio of stocks, I want to give them an actual home they can use,” Francis said as an example.
But purchasing a property and becoming a landlord requires a significant investment of money and time, more so than other types of portfolio assets.
“It's not easy being a landlord,” said CFP Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts. “There's so much more to it than just getting a monthly check.”
Once you purchase a property and turn it into an investment, you need to manage the property, properly insure it, and be able to service it.
Whether you do it yourself or have someone look after the property for you, it could cost you money, Ahmed explained.
REITs can also provide diversification opportunities. Depending on the company, you're exposed to hundreds or even thousands of different properties or regions, experts say.
You can also invest in different types of real estate, such as shopping malls, warehouses, and office buildings. However, if you invest in a region or sector experiencing currency depreciation, the price decline will be reflected in your portfolio.
“If there's a real estate investment trust investing in malls across the country, and the malls aren't doing well … you're going to feel that,” Francis said. “You won't be protected.”
How much real estate should you have in your portfolio?
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If you really want to tap into the property market as a long-term investment, you have to “really look into these funds,” Francis explained.
REITs should also contribute to diversifying your investment portfolio, “it doesn't have to be all of it,” Francis said. Some advisors recommend that REITs should not account for more than 25% of your investment portfolio, she said.
Be careful about how a REIT affects your tax situation. Experts say REITs often pay out 90% or more of profits in the form of dividends, which can be subject to ordinary income taxes.
“It's as if those profits came to you and your paycheck at work,” Francis said.
If you don't need the extra income, try adding your REIT in a tax-sheltered account, such as an individual retirement account, Ahmed said.
“The location of the assets is important,” he added.
