REITs as a way to get started

[Danial Cousino]

I’m new to investing so I’ve spent a lot of time trying to learn how to have consistent growth to support my retirement one day in the distant future. I can’t afford to invest in actual Real Estate so I thought what about REITs. I know they have different avenues to invest in like commercial and multi family which would be a nice diverse portfolio if I those the right ones. By law with a REIT the income has to be reincorporated to the fund like a dividend, but then I thought how much is taxable income on a typical Real Estate property? What if there was no income generated because operating cost are to high. But when rent is increased that increase is put back into the fund. I guess what I’m asking is do you think REITs are a good way to go for investors with limited funds? I’d love to own Real Estate in my area that I could pass down to my children and learn what it takes to be good with growing generational wealth and providing a nice place for people to live but I have limited knowledge and money at this point... Thank you.

[Account Closed]

I've invested in REITs rather than direct real estate. Publicly-traded REITs before (buy and sell in seconds during market hours) and private REITs now (generally illiquid, so plan on owning them for years). Think of a REIT as a mutual fund of properties (usually commercial properties) where you are delegating the management task to the executives running the REIT. You vote for the members of the board of directors of a publicly-traded REIT, but get no say in how the REIT is run.

Besides private crowdfund REITs (some include loans for rehabbing), I own an ETF that holds REITs and I'm diversified internationally by owning shares of a global real estate mutual fund. This approach to real estate investing requires a minimum of a few hundred to a few thousand dollars of capital. In exchange for fewer headaches (no tenants, toilets, or termites to worry about), you don't get to use as much leverage (debt financing) or get the juicier tax benefits of directly owning real estate. But you do get exposure to the business dynamics of rental real estate.