In episode 15 of The Making of a Millionaire podcast, we discuss the benefits of investing in Real Estate Investment Trusts (REITs) compared to physical real estate.
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Summary of today’s episode
While investing in physical real estate requires a lot of money, investing in REITs allows someone with less than $100 to begin investing in real estate.
REITs are companies that buy real estate and payout 90% of their taxable income to their shareholders. You can easily buy REITs in the same way you would buy stocks. Additionally, you can increase your diversification by buying REIT index funds in the same way you would buy an S&P 500 index fund.
REITs have historically provided a strong return while maintaining a low correlation to stocks. However, investing in REITs is investing in one specific sector of the economy (real estate), which exposes investors to idiosyncratic risk.
REITs solve the three biggest problems of investing in physical real estate.
Diversification
Liquidity
Management time and effort
REIT investors need to know that the dividends from REITs are less tax-efficient than dividends from other publicly traded companies. This means the most efficient way to invest in REITs is through retirement and other tax-sheltered accounts.
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How To Invest In Real Estate With Less Than $100