Want to Buy Real Estate Stocks? Before buying Real Estate stock, you should consider researching this sector's fundamentals and effectively compare the performance and earning potential of the different Real Estate stocks, thus leading to smart and wiser investment decisions.
Real estate appears to the eyes of many to be the ultimate form of investment, since it can be a great generator of passive income, while also gaining value through appreciation, thus building a strong track record of healthy returns. In fact, studies comparing the returns of real estate to the returns of other assets, reveal that real estate yields the highest returns with lower volatility and lower risk. On top of this, a real estate investment also gives one the satisfaction of being able to boast about and look at an actual building they own, which feels much better than merely looking at company shares on a screen.
Nevertheless, engaging in a direct real estate investment is not easy, in fact, there are many barriers to entering this market and an interested investor will need hefty sums of money to buy a building, hold the necessary reserves to finance repairs and maintenance, and also invest in terms of time and the acquisition of the necessary skills and knowledge to be able to succeed. These high entry barriers are what keeps returns strong as not everyone can actually invest in real estate directly.
The good news is that interested investors may instead choose to indirectly invest in real estate, through a real estate investment trust (REIT), which makes investing in real estate available and accessible to all.
A REIT raises money from shareholders that it then invests in real estate. REITs operate similarly to ETFs and mutual funds, with the difference being that the investment is made in actual properties and not on assets on paper. Investing in real estate via a REIT is done either by purchasing real estate or through the provision of loans or assuming mortgage contracts. Therefore, REITs are classified into three different categories, namely equity REITs, mortgage REITs, and hybrid REITs. Most REITs are publicly traded and in order to avoid incurring corporate income tax they must return over 90% of their profits to their shareholders. As a result, they offer incredibly high dividend yields.
By the end of the guide, you should know the following:
|Strong Income Yields||Potential for High Risk and Fees|
|High Liquidity||Yield Taxed as Regular Income|
As an investment form, an investment in REITs comes with several distinct advantages, chief amongst which are:
By investing some of their available funds in a REIT, investors gain the advantage of diversifying their portfolio and acquire access to the high returns of real estate, but without having to incur the volatility and risks of a stock investment. Moreover, real estate is not heavily correlated with stocks and thus an investment in a REIT protects the investor from market fluctuations. Furthermore, when investing through a REIT it is also possible to diversify your real estate investment within the sector itself, by owning a share in several different properties of different types, such as residential, retail, commercial, and industrial buildings. An individual investor could not access the large properties that funds can ensure access to. Finally, a REIT investment allows you to diversify your investment in real estate geographically as well, across different cities and even across different countries.
Investing in REITs is a great way to achieve a substantial source of passive income, along with other forms of passive income, and may well lead investors to unprecedented levels of financial independence. Perhaps the most appealing aspect of REITs is the very high yields they payout in the form of dividends, which are rarely below 3% and often reach 10%.
If you invest in real estate directly, it would take you months if not more to then resell the property in order to achieve profit. By buying into a publicly-traded REIT on the other hand, you can sell your shares immediately. Thus, and especially since you are also able to sell your shares back to the REIT itself, a REIT investment is much better in terms of the liquidity offered than any direct property ownership.
When you buy shares in a REIT, the acquisition and property management aspects are taken care of by professionals and the only thing you have to do is to collect your earned returns. This relieves you from the hassle of having to deal with tenants and their complaints and having to tend to issues of building maintenance and many others, as is the case when you invest in a real estate property directly.
REIT dividends enjoy a favorable tax treatment; as ordinary income is taxed at much higher rates than capital gains. Moreover, if you have owned your shares for more than a year before you sell them, you are liable to a lower capital gains tax. Additionally, depreciation expenses are deducted from the shareholder dividends amount, since they are viewed as a return of capital to the shareholder.
Investing in a REIT, despite its many advantages, it not devoid of certain downsides as well, which you should take into account before investing in this field. The main cons of REITs are:
Since to avoid taxation all publicly-traded REITs must pay out to their investors 90% of their profits immediately to investors in the form of dividends, they always have to title left to invest in buying more properties and further propel their growth. If dividend payouts are not enough for you and you would like to invest in REITs that can attain better appreciation and stronger growth, then you should choose private REITs which are not publicly listed.
A REIT investment is easy because shareholders simply collect their profits. The downside to this, however, is that they absolutely no control over the performance of their investment and cannot interfere in the management of the actual properties in any way. In the case of a direct real estate investment, an investor may also market and promote vacant spaces to tenants, screen the tenants to choose the most trusted ones, etc, thus having a direct impact on the returns and performance of the investment. If investing in a REIT the only thing you can do is sell your shares if the performance doesn’t satisfy you.
The profits made through investments that you hold for over a year are taxed as capital gains and thus incur a lower tax rate. However, dividend payouts are considered as income and are taxed at a higher rate than regular income tax stands. Since the greatest part of your returns from a REIT investment comes in the form of dividends, this means that you may well end up footing a considerably higher tax bill than if had invested in other forms of investment that are more price growth-oriented.
Simply because they are regulated entities does not mean that investing in REITs is a low-risk endeavor. In fact, before investing in a specific RIET it would be wise to conduct your due diligence and try to identify all potential risks, as well as evaluate property values overall and in specific locations, interest rates, and other important factors. It is equally important to keep in mind that REITs charge significant fees, both management fees and transaction fees and that often such fees are hidden in the small print but do result in significantly lower payouts.
There are several online sites and platforms where people from across the globe can buy Real Estate at good exchange rates and with low or no transaction fees. To aid your quest we have comprised a list of some of the most popular Stock Trading platforms to buy Real Estate sector's shares from and your strongly advised to consult this list before making your first purchase of or investment in Real Estate industry.
The answer is definitely not no, but a little short than a resounding yes. The industry’s outlook is promising and its future appears bright, however, investors should not be expecting a linear growth pattern, nor anticipate that all Real Estate stocks will fare equally well. To maximize the chances for success of your Real Estate sector stocks investment make sure you make smart and wise decisions on which energy companies you will choose to invest in.
There is no guarantee that you will make a profit when you invest in Real Estate. However, to give yourself the best chance possible we have hand-picked the three most valuable such strategies, which you can find below:
Real estate is a proven long-term investment opportunity that has yielded significant returns over the years, while it often benefits from short and long-term price swings, which boost real estate prices and thus profits for real estate investors. But direct real estate investment is not accessible to all and entails many headaches and challenges. To avoid those, but still invest in the real estate sector, you can choose the indirect investment via REITs. A REIT real estate investment will allow you to diversify your portfolio while protecting you from extreme market volatility. Provided you perform your research and due diligence so that you can take your investment decisions wisely and knowingly, then investing in a REIT may well prove an excellent source of passive income and offer you incredible prospects for further gains.
In this guide, the aim wasn’t only to answer simple questions like “how to buy stocks of the Real Estate sector?” or “where to buy Real Estate stocks?”. Instead, the goal was to equip you with the relevant knowledge and insight to be able to see and understand the bigger picture as well as make your Real Estate stocks investment journey as successful and as profitable as possible!