The Best Ways to Invest in REITs

REITs provide investors with an easy and cost-effective way to diversify their real estate holdings without dealing with the hassles and expenses associated with buying and managing properties themselves. Before investing in REITs, consider your time horizon, risk tolerance, and financial goals before making your decision.

REITs tend to be more liquid investments than direct property purchases; however, non-traded and private REITs may be difficult to purchase and sell. You should review dividend histories and payout ratios carefully when investing in REITs.

1. Invest in Publicly Traded REITs

Publicly traded REITs provide direct exposure to real estate without having to buy and sell individual properties. They're regulated by the SEC, trade like stocks and can be acquired through brokerage firms; furthermore, these investment vehicles typically offer more liquidity than non-traded REITs.

Real Estate Investment Trusts (REITs) tend to distribute a substantial percentage of their taxable income as dividends to shareholders, with the best REITs typically offering high yet sustainable yields with consistent increases over time.

REITs also boast lower capital gains taxes compared to other income investments; however, they're susceptible to interest rate risk and often carry significant debt levels; therefore they're not recommended for investors seeking fast returns but are better suited for long-term diversification purposes.

2. Invest in ETFs

Buy REIT shares are one of the easiest and most liquid ways to invest in real estate, either through a brokerage account or using an automated investment advisor who will do all the legwork on your behalf.

The ideal REIT stocks provide attractive dividends with consistent increases, as well as positive total returns, which ensure consistent gains without suffering significant capital losses.

REITs do not pay taxes at a corporate level, providing greater profit potential for their investors. Unfortunately, REITs often become indebted and suffer from illiquidity issues.

While REITs can add income to a portfolio, it's essential to understand their risks and incorporate them into a diversified investment strategy. If you need help developing one, consult a financial advisor; NerdWallet offers rankings of online brokers and robo-advisors which help find you your perfect match based on 15 factors such as fees/minimums/investment choices/customer support/mobile app capabilities etc.

3. Invest in Mutual Funds

REITs offer investors many attractive benefits, such as dividend income and stock price appreciation potential. Furthermore, REITs serve as diversification from other stocks in your investment portfolio and help smooth out returns across your overall portfolio.

Direct ownership of real estate requires substantial initial capital outlay and ongoing property management fees, which tends to limit how many investments an investor can make and increase risk across only a handful of assets. By contrast, REITs tend to hold multiple properties simultaneously which reduce risk concentration across their portfolio and individual investments.

To increase your retirement savings, focus on REITs with proven track records of high total returns - such as past earnings growth and reliable dividend payouts. NerdWallet ratings take this factor into consideration while considering other key metrics like funds from operations when recommending suitable REITs for portfolios.

4. Invest in Privately Traded REITs

REITs offer investors an effective way to diversify their portfolio with real estate while earning income through rental payments or sales proceeds, yet these investments require due diligence before being placed into their portfolios.

Investors should carefully consider both the types and locations of properties owned by REITs before investing. Residential REITs tend to focus on urban markets with rapid population and job growth that create an increase in renter demand and property values.

One drawback of REITs is their vulnerability to market conditions such as rising interest rates, which may prompt investors to switch into safer income investments like bonds instead. REITs may also be exposed to risks posed by specific properties losing value over time.

Investors should carefully evaluate a REIT's earnings, debt and fees before investing. Furthermore, they should check whether its performance correlates strongly with that of its public stock market counterpart, which could increase volatility.

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