Invest in Real Estate Without Buying Property Using REITs

If investing in real estate has ever interested you, but you just don't have the means to buy a bunch of properties, there is still a way that you can indirectly invest in real estate. There are financial instruments called Real Estate Investment Trusts (REITs) that allow you to own a small piece of multiple properties.

Created by Congress in 1960, a REIT is a company that will own many different income producing properties in a specialized area such as residential or commercial. Because the company owns so many pieces of real estate they are able to derive a good profit and they pass most of that profit on to its investors by way of a dividend.

You can buy shares of a REIT in the form of stock and many major REITs are listed on major stock exchanges. That means you can buy one share, one hundred shares, or whatever you pleasure is. REITs will fluctuate in price just as stocks do and you can sell your shares of a REIT at any time, just like with stocks.

In order for a company to qualify as a REIT it has to have at least 100 shareholders, pay at least 90 percent of its profits to the shareholders, have at least 75 percent of its assets invested in real estate, have at least 75 percent of its income coming from rents or mortgages on the properties they own, and invest in larger properties that have the potential to produce income. While there may be other criteria that have to be met depending on the specific REIT, the aforementioned qualifications have to be met by all REITs.

REITs are often a very attractive investment as they will frequently have higher paying dividends than many other stocks. Add to that the chance that the value of shares can go up and you begin to see why REITs enjoy such popularity. However, as with any stock investment, REITs also have a chance to go down in value and a decline in price can be driven by several factors including an overall drop in the stock market, a declining real estate market, and mismanagement of the properties within the REIT.

If you think you might be interested in buying shares of a REIT you should consult first with your financial advisor. Most financial advisors will be able to dig into the financials and background of a specific REIT and give you a better picture of what you are looking at.

Becoming a real estate tycoon is an endeavor that requires a lot of money, but virtually anyone can become a real estate investor thanks to REITs. While you won't own the whole pie, a little slice of something good is better than nothing at all.

Source: REIT.com, All About REITs, REIT.com