Did you know you can invest in real estate WITHOUT the hassle of actually having to own properties?
I get asked about REITs a lot so I wanted to do an overview on how they work. It’s actually a really cool fund structure in my opinion! It works with a fund manager basically paying property owners for equity in a diversified set of properties, then selling that diversified equity to shareholders (similar to how you purchase a stock or an ETF).
Now if you’re asking… “so do I invest in one of these?”, per usual, the answer is “it depends.” I won’t advise on whether you should or should not, but I’ll give you a bit of a tip of how you can think about it.
REITs have had pretty good appreciation over the long term, but it hasn’t beaten the stock market. I would say that the function that a REIT would serve would be to decrease your volatility a bit without decreasing your expected return too much. Those are VERY broad statements because you never really know. The housing market is generally not as correlated with the stock market, but in 2008 we saw both crash. You never really know.
I personally don’t invest in REITs, but the reason I post about it is because I don’t think they are some crazy speculative investment that should be avoided like the plague. If you told me you wanted to allocate 10-15% of your portfolio to REITs, I’d say that’s valid. I don’t do it, but you’ll probably be just fine.
Remember, building wealth is 90% about living below your means and investing in a diversified portfolio. Whether you choose to invest in a REIT or not will probably not make a huge difference either way, but it might be something you have conviction about. Hopefully this post serves as a good intro for you to deep dive into the asset class and make a decision for yourself!
– Matt
