Are you interested in real estate investing but don’t have a large amount of capital to get started? Real Estate Investment Trusts (REITs) may be the perfect solution for you. REITs allow beginners—even those with little money—to invest in real estate and earn potential returns without buying property directly. This detailed guide covers everything you need to know about how to invest in REITs, especially if you’re just starting out and don’t have much to invest.
What Are REITs?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate in various sectors such as commercial, residential, healthcare, and more. They pool together money from many investors and use it to buy and manage properties, distributing most of the rental income as dividends.
Key Advantages of REITs:
- Low entry requirements: Many REITs can be bought for as little as the price of one share.
- Liquidity: Most are traded on public stock exchanges, making them easy to buy and sell.
- Diversification: Invest in a wide array of property types and locations.
- Passive income: Regular dividends from rental and property income.
Why Beginners with Little Money Should Consider REITs
Traditional real estate investing requires significant amounts of capital, time, and effort. For example, buying a rental property could require tens of thousands of dollars and ongoing management. REITs, on the other hand, offer a way to invest in real estate with small amounts—sometimes less than $100—and require no active management from you.
Types of REITs
Before you start investing, it’s helpful to understand the main types of REITs:
1. Equity REITs
- Own and manage income-generating real estate.
- Most common type.
- Generate revenue through rent and property appreciation.
2. Mortgage REITs (mREITs)
- Provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities.
- Generate income from the interest on those financial assets.
3. Hybrid REITs
- Combine strategies of both equity and mortgage REITs.
For beginners, equity REITs are generally simpler and less volatile compared to mortgage REITs.
How to Invest in REITs with Little Money: Step-by-Step
1. Open a Brokerage Account
To buy publicly traded REITs, you need a brokerage account. Many modern brokers offer commission-free trading and allow you to start with a minimal deposit—sometimes no minimum at all! Popular online brokers include:
- Robinhood
- Fidelity
- Charles Schwab
- Webull
- E*TRADE
2. Research and Choose REITs
Here’s what to look for:
- History of dividends: Choose REITs with a strong track record of paying and increasing dividends.
- Property type: Consider REITs in sectors you believe will grow (e.g., industrial, data centers, healthcare).
- Management quality: Read about the REIT’s management and reputation.
- Expense ratio: If you prefer REIT ETFs, compare fees.
Top REIT Examples:
- Public Storage (PSA): Focuses on self-storage properties.
- Simon Property Group (SPG): Owns large retail real estate like shopping malls.
- Realty Income (O): Has a reputation for consistent monthly dividends.
- Vanguard Real Estate ETF (VNQ): Gives exposure to a broad range of REITs.
3. Decide How Much to Invest
Since many REITs are traded like stocks, your minimum investment is typically the cost of one share. Some brokers allow you to buy fractional shares, so you can start with just a few dollars. Set a starting amount—$10, $50, or $100—and increase as your budget allows.
4. Place Your Order
Log into your brokerage account, search for the REIT ticker symbol, enter the amount, and place your order. Decide if you want to set up automatic, recurring investments for steady growth.
5. Monitor and Reinvest Dividends
Check your investment periodically. Most REITs pay dividends quarterly or monthly. Consider reinvesting those dividends to buy more shares and leverage the power of compounding.
Other Affordable Ways to Invest in REITs
1. REIT Mutual Funds and ETFs
- Shareholder funds are pooled into a mutual fund or ETF that invests in multiple REITs.
- Great for diversification with very little initial investment.
- Look for index funds/ETFs like Vanguard Real Estate ETF (VNQ) or Schwab US REIT ETF (SCHH).
2. Micro-Investing Platforms
- Apps like M1 Finance, Stash, and Acorns let you invest in REIT ETFs or select REITs with as little as $1.
Tips for Investing in REITs as a Beginner
- Start small: Don’t invest more than you can afford to lose. Let your confidence and knowledge grow before committing higher amounts.
- Diversify: Don’t put all your money in one REIT or sector. Diversified REIT ETFs are a smart choice.
- Stay informed: Watch market trends, interest rates, and sector performance.
- Think long term: Real estate is a long-term investment. Don’t panic with short-term fluctuations.
- Use DRIP: Dividend Reinvestment Plans (DRIP) let you automatically reinvest dividends to buy more shares.
FAQs About Investing in REITs
Q: Can I lose money investing in REITs?
A: Yes, like any investment, REITs come with risks. Real estate market downturns, bad management, or rising interest rates can affect prices and dividends.
Q: Are REIT dividends taxable?
A: Typically, dividends from REITs are subject to ordinary income tax. Check with a tax professional for your situation.
Q: How much money do I need to start?
A: You can start with as little as the price of one share, sometimes even less with fractional shares or REIT ETFs.
Start Your Real Estate Investment Journey Today
Investing in REITs is one of the easiest and most affordable ways for beginners with little money to get started in real estate. With low entry barriers, diversification options, and the potential for steady income, REITs are worth considering for any beginner investor. Open a brokerage account, do your research, and start with an amount you’re comfortable with. Over time, dividends and appreciation can help build your wealth through the power of real estate investing!
Ready to invest in REITs? Start today and take your first step towards financial growth—even with just a small amount!