Posted 19 October 2023
A Different Type of Real Estate Investing
When it comes to building wealth and diversifying your investment portfolio, college students might not immediately think of real estate. However, real estate investment trusts (REITs) offer an accessible and possibly lucrative way for young investors to dip their toes into the world of property ownership without the hassle of being landlords.
REITs are like mutual funds for real estate. They allow investors to pool their money and collectively own income-generating properties such as apartments, office spaces, shopping centers, and hotels. Think of REITs as a chance to own a slice of a real estate pie without the need for large upfront investments.
Why Consider REITs?
One reason REITs deserve consideration is their low barrier to entry. Traditional real estate investing often demands a substantial amount of capital, making it challenging for college students. REITs, on the other hand, can be bought for a few hundred dollars. Diversifying your investment portfolio reduces risk. REITs provide exposure to various types of properties across different markets, lowering the effect of a downturn in any single sector. REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. This means there is the opportunity for passive income, and you don’t have to sell your investment to receive it.
Types of REITs
- Equity REITs: These REITs own and operate income-generating properties. Their revenue comes from leasing and renting spaces to tenants. These are the most popular and often just referred to as REITs.
- Mortgage REITs: These REITs invest in mortgages and mortgage-backed securities, earning income from the interest on loans.
- Hybrid REITs: As the name suggests, these REITs combine the features of both equity and mortgage REITs, offering a balanced approach.
How to Get Started
- Research: Learn about different types of REITs, their performance history, and the sectors they invest in.
- Determine risk tolerance: As with all investments, REITs come with risks. Understand your risk
tolerance and investment goals.
- Choose a brokerage account: You’ll need a brokerage account to buy and sell REIT shares. Look
for one with low fees and a user-friendly interface.
- Diversify: Consider investing in a mix of REITs to spread risk across various sectors.
- Long-term perspective: While REITs can generate passive income, they also benefit — as do most investments — from long-term appreciation. Patience can yield substantial gains.
Real estate investment trusts offer college students an opportunity to enter the world of real estate without a massive financial commitment. With their inexpensive entry point, diversification benefits, and passive income potential, REITs are an appealing investment avenue to explore on your journey toward financial independence.
Remember, investing always carries risks, so it’s important to conduct thorough research and consider seeking advice from financial professionals before making any investment decisions.