Are you curious about real estate investing but not ready to buy or manage physical property? The world of Real Estate Investment Trusts (REITs) offers a practical and accessible path—whether you’re a new investor or looking to diversify your portfolio. In this comprehensive news article, we’ll break down exactly how to start investing in REITs, explain their benefits and risks, and provide actionable steps to help you begin your investment journey with confidence.
What Are REITs?
REITs, or Real Estate Investment Trusts, are companies that own, operate, or finance income-producing real estate across various sectors—from office buildings and shopping centers to hospitals and warehouses. Investing in REITs allows individuals to earn a share of the income produced through commercial real estate ownership—without actually having to buy or manage any property.
Recognized for their high dividend yields and potential for long-term capital appreciation, REITs are an increasingly popular choice for investors seeking diversification and regular income.
Why Invest in REITs?
Before learning how to start investing in REITs, it’s important to understand their key advantages:
- Diversification: REITs provide exposure to real estate and tend not to move in lockstep with stocks and bonds.
- Regular Income: REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends.
- Liquidity: Publicly traded REITs can be bought and sold on major stock exchanges, much like stocks—offering greater flexibility than owning property directly.
- Accessibility: You can start investing in REITs with relatively small amounts of capital.
How to Start Investing in REITs: Step-by-Step
Here’s a clear step-by-step guide on how to start investing in REITs:
1. Learn the Types of REITs
There are three main categories of REITs:
- Equity REITs: Own and operate real estate (e.g., apartments, offices, malls).
- Mortgage REITs (mREITs): Invest in mortgages and earn income from interest on these financial assets.
- Hybrid REITs: Combine owning properties and holding real estate loans.
Most investors begin with equity REITs due to their simplicity and lower risk compared to mortgage and hybrid REITs.
2. Choose Between Publicly Traded and Non-Traded REITs
- Publicly Traded REITs: Listed on major stock exchanges and regulated by the SEC. Easily bought and sold through brokerage accounts.
- Non-Traded REITs: Not listed on public exchanges, generally less liquid, and often require higher investment minimums.
Beginner investors are advised to start with publicly traded REITs due to their transparency and liquidity.
3. Open a Brokerage Account
To buy publicly traded REITs, you’ll need an investment account with a reputable brokerage. Most online brokers offer access to REITs. When choosing a platform, look for:
- Low fees or commissions
- Research and education tools
- User-friendly interface
4. Research and Select REITs
Before investing, compare different REITs by considering:
- Property sectors (retail, healthcare, industrial, etc.)
- Geographic focus
- Historical dividend yield
- Management experience
- Balance sheet and debt levels
- Ratings from financial analysts
Popular REIT tickers include Realty Income (O), Vanguard Real Estate ETF (VNQ), and American Tower (AMT).
5. Decide How to Invest
You can:
- Buy shares of individual REITs: This allows customization and the potential to outperform the market—but requires solid research.
- Invest in REIT mutual funds or ETFs: These funds hold many REIT stocks, offering instant diversification and professional management. For example, VNQ (Vanguard Real Estate ETF) and SCHH (Schwab U.S. REIT ETF) are popular choices for beginners.
6. Place Your First Order
Once you’ve selected a REIT or REIT fund, enter the ticker symbol and the number of shares or dollar amount to invest. You can choose between a market order (buy at current price) or a limit order (specify your price).
7. Monitor and Rebalance
REITs are not “set-and-forget” investments. Monitor your portfolio performance, dividend payouts, and the real estate market overall. Rebalance your holdings annually or as your investment goals shift.
How to Start Investing in REITs With Small Amounts
Thanks to brokerage apps and fractional investing, you can begin investing in REITs with as little as $10 or $20. REIT ETFs are especially beginner-friendly, allowing you to own a piece of dozens of properties for a modest initial investment.
Key Factors to Consider Before Investing in REITs
Understanding how to start investing in REITs also means knowing the risks:
- Interest Rate Sensitivity: Rising interest rates can pressure REIT share prices.
- Market Cycles: Changing economic conditions can impact property values and rental income.
- Dividends Are Taxed as Ordinary Income: Most REIT dividends do not qualify for lower capital gains rates.
- Liquidity for Non-Traded REITs: If you invest in non-traded REITs, selling your shares might be more difficult.
Common Mistakes to Avoid
- Focusing solely on high yields: Unsustainable yields can signal financial trouble or excessive leverage.
- Neglecting fees: Some REIT funds and non-traded REITs charge high management or upfront fees.
- Lack of diversification: Don’t invest only in one REIT or property sector; spread your exposure across multiple areas.
Final Thoughts: Start Investing in REITs With Confidence
Learning how to start investing in REITs is your first step toward accessible real estate investing. By following these steps—understanding the different types, selecting REITs or REIT funds, opening a brokerage account, and monitoring your portfolio—you can begin building wealth through commercial real estate without the headaches of hands-on property management.
REITs offer high income potential, diversification, and liquidity, making them a smart choice for many portfolios. As always, do your own research and consider consulting with a financial advisor to determine the best fit for your needs.
Key Takeaways:
- Open a brokerage account
- Research types and sectors of REITs
- Start with REIT stocks or ETFs for easy diversification
- Monitor your investments for maximum success
Ready to take your first step? Now you know exactly how to start investing in REITs and can begin your journey toward financial growth today!