Real estate stocks offer investors a stable stream of income backed by physical properties. Furthermore, they’re relatively simple for beginner investors to acquire–all that’s necessary to start is opening a brokerage account and researching REITs that best meet your investment needs.
As with any investment, REITs present both risks and rewards that should be carefully assessed before investing. Here are some helpful tips for finding the best real estate stocks to invest in.
1. Invest in Diversified Portfolios
Diversifying your investments helps reduce the risk that you won’t meet your financial goals by spreading out investment dollars among various asset classes and industries.
Real estate stocks offer a convenient way to diversify your portfolio without needing to own or manage actual real estate. REITs often trade like traditional stocks on the stock exchange, making buying and selling easy through your brokerage account.
Your investment options for real estate include real estate funds that specialize in various areas, including commercial or residential real estate. Furthermore, diversify maturity lengths by investing in short, medium and long term investments to reduce volatility. When making any decision related to investing it is essential that costs associated with each vehicle such as transaction fees when buying and selling shares as well as brokerage charges are taken into consideration.
2. Diversify Your Income Streams
Real estate buyers agents highlight that real estate stocks and funds offer an excellent way to diversify your income streams while enjoying steady passive returns. They have the added advantage of being backed by physical property and often feature long-term contracts that help to secure cash flow. But these investments do come with their own specific risks: one being that real estate assets are often less liquid than stocks; this may make turning them quickly into cash when needed more difficult.
REITs can also fluctuate rapidly over the short term, so it is crucial that you understand their risks and can afford any losses in investment capital. Therefore, public REITs that you purchase through a brokerage account offer reduced risks while providing access to liquidity should you need it in an emergency situation. However, for more immediate diversification consider investing in an ETF which tracks multiple REITs within their sector.
3. Look for Growth Opportunities
When investing in REITs, it’s essential to identify those which take advantage of secular tailwinds – this includes self-storage, alternative housing and cell tower REITs which generate stable cash flow regardless of economic conditions – these companies also tend to be well prepared for increasing interest rates.
Stock investments tend to be easier for investors to manage than real estate. They also allow more opportunities for diversification through purchasing shares in different industries and international markets. Furthermore, strategies like dollar-cost averaging allow stock investors to purchase their investments gradually while mitigating any negative market events on returns.
Individuals can invest in real estate directly by becoming landlords of rental properties, or indirectly via real estate investment trusts (REITs). While the latter offers more passive income streams, finding the appropriate balance for individual investors’ personal goals requires time spent studying an REIT’s operations and business plan.
4. Keep an Eye on Taxes
Real estate investment trusts (REITs) provide an easy and stress-free way to invest in real estate without the hassles associated with finding and managing properties yourself. Before investing, do your homework on any potential REIT investments: make sure they have low debt levels, sufficient funds for upkeep costs and well-defined future goals.
Also ensure you fully comprehend the tax implications of investing in a REIT, such as having to pay taxes on its profits at a high tax rate. Furthermore, keep track of depreciation on your property – according to IRS rules, investors can depreciate residential properties over 27.5 years and 39 years; this can significantly lower taxable income.