Are you interested in real estate investing but don’t have hundreds of thousands of dollars to buy property? Real Estate Investment Trusts—commonly known as REITs—make it possible for beginners with little money to invest in income-generating real estate portfolios. If you’ve been searching how to invest in REITs for beginners with little money, you’re in the right place. This comprehensive guide will explain everything you need to know to start investing in REITs, even if you’re just getting started and your budget is modest.
What Are REITs?
REITs, or Real Estate Investment Trusts, are companies that own, manage, or finance income-producing real estate. They allow investors to pool their money together to invest in properties such as apartments, office buildings, shopping malls, hotels, and even data centers or cell towers. By law, REITs must distribute at least 90% of their taxable income as dividends to shareholders, making them an attractive option for income-hungry investors.
Why REITs are Perfect for Beginners with Little Money
One of the biggest barriers to real estate investing is the amount of capital required. Buying a single rental property can cost tens or even hundreds of thousands of dollars. Here’s where REITs shine for beginners with limited funds:
- Low minimum investment: You can buy shares of publicly traded REITs for the cost of a single share, sometimes under $20.
- Liquidity: Unlike physical properties, REIT shares can be bought or sold on the stock exchange in seconds.
- Diversification: With a small investment, you can access a portfolio of properties across different sectors and locations.
- No hassle from management: Forget about the headaches of being a landlord: repairs, tenants, and vacancies are handled by the REIT’s managers.
How to Invest in REITs for Beginners with Little Money: Step-by-Step
1. Understand The Types of REITs Available
Before you invest your first dollar, it’s important to know the different kinds of REITs:
- Equity REITs: These own and operate income-producing real estate. They make money primarily from rents.
- Mortgage REITs (mREITs): These provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities. They earn income from interest.
- Hybrid REITs: These combine both equity and mortgage investments.
- Publicly traded REITs: These are listed on stock exchanges and can be bought and sold easily.
- Non-traded REITs: These are not listed on exchanges, can be harder to sell, and are generally not suitable for beginners.
2. Set Up a Brokerage Account
To buy shares of a REIT, you’ll need a brokerage account. Fortunately, you can easily open one online within minutes. Look for features that suit beginners, such as:
- No account minimums
- Low or zero trading commissions
- User-friendly platform
Popular options in 2024 include Fidelity, Charles Schwab, Robinhood, and Webull.
3. Research and Choose the Right REITs
It’s important to choose REITs that fit your goals. Here’s how beginners with little money can research potential investments:
- Yield: Check the current dividend yield. Many REITs pay between 4%–8% annually.
- Sector Exposure: Do you prefer residential real estate, offices, industrial warehouses, or healthcare facilities?
- Expense Ratio (for REIT funds/ETFs): Lower is usually better.
- Track Record: Look for REITs with strong, consistent payouts and historical performance.
- Management: Read reviews about the company managing the REIT.
4. Decide How Much to Invest
With little money, start small! Even $10–$100 can get you started, especially thanks to fractional shares now offered by some brokerages.
5. Buy Shares and Reinvest Dividends
Once you’ve selected your REIT, place your order through your brokerage. Consider enabling a Dividend Reinvestment Plan (DRIP) so your dividends are automatically used to buy more shares—this is a great way to compound your investment over time.
6. Monitor and Diversify Your Portfolio
While REITs can be a great way to get exposure to real estate, you’ll want to avoid putting all your eggs in one basket. Consider diversifying across several REITs, different sectors, or even adding a REIT ETF for instant diversification.
The Best Way to Invest in REITs for Beginners: ETFs and Mutual Funds
For beginners, REIT Exchange-Traded Funds (ETFs) or REIT mutual funds can be the easiest path. These funds invest in lots of different REITs at once, giving you exposure to the entire sector in a single purchase. Examples include:
- Vanguard Real Estate ETF (VNQ)
- Schwab U.S. REIT ETF (SCHH)
- iShares Cohen & Steers REIT ETF (ICF)
Even with $10 or $50, you can start investing thanks to fractional shares.
Tips and Common Mistakes When Investing in REITs with Little Money
- Start small and build over time. Consistently contribute, even modest amounts, to take advantage of dollar-cost averaging.
- Don’t chase the highest yield. Ultra-high dividends can be a red flag for financial trouble.
- Watch fees. If using an ETF or mutual fund, make sure the expense ratio is low.
- Focus on total return: Dividends are great, but also watch for potential price appreciation of REIT shares.
- Consider tax implications: REIT dividends are generally taxed as ordinary income. Use a tax-advantaged account like a Roth IRA if possible.
Frequently Asked Questions (FAQs)
Q: Can I invest in REITs with $100 or less?
A: Yes! Many online brokerages allow you to buy fractional shares. With as little as $10 or $50, you can get started today.
Q: Are REITs a risky investment?
A: Like all investments, REITs come with risk (such as changes in real estate markets or interest rates). However, they offer diversification, professional management, and liquidity.
Q: Do REITs pay monthly or quarterly dividends?
A: Most REITs pay dividends quarterly, though some pay monthly. Check the REIT’s distribution schedule.
If you’ve ever wondered how to invest in REITs for beginners with little money, the answer has never been easier. REITs open the world of real estate investing to everyone, no matter your starting budget. By starting small, reinvesting dividends, and consistently adding to your investment, you can build a growing stream of income and diversify your portfolio beyond traditional stocks and bonds.
Ready to invest in REITs? Open a brokerage account, do your research, and start with what you can afford. In real estate investing, starting early and staying consistent—no matter how small the amount—can pay off in the long run.
Want more tips? Bookmark this guide and check out our other articles on investing for beginners, building passive income, and creating wealth with little money.