Investing in real estate could make you quite wealthy, but it isn't always for the faint of heart. In fact, many people read house flipping horror stories and decide they'll never get into the business of renovating homes and selling them for a profit.
Similarly, many people saw the struggles landlords endured when a federal eviction ban was put into place during the pandemic, and as such, are turned off from owning income properties.
But if you write off real estate investing due to fear, you might lose out on the chance to diversify your portfolio and make a lot of money over time. So if you're thinking of getting started with real estate but have a limited appetite for risk, don't run away. Instead, take these four key words of advice to heart: Load up on REITs.
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Load up on REITs
Within the realm of real estate investing, you have choices. You could try renting out or flipping actual properties, or you could sit back and simply fill your portfolio with REITs, or real estate investment trusts.
Given the state of the housing market today (sky-high home prices and soaring borrowing rates), REITs happen to make a lot of sense right now. But they're also a generally good bet for branching out into real estate.
When you buy REITs, you own shares of companies that make money by operating different types of properties. And as is the case with regular stocks, there are different REIT sectors you could dabble in.
Industrial REITs, for example, are companies that operate warehouses and fulfillment centers. Because there's been such an uptick in digital sales in the wake of the pandemic, the need for industrial space has exploded, making these specific REITs a solid bet.
Meanwhile, healthcare REITs are those that operate hospitals, urgent cares, and nursing facilities. Healthcare REITs are a good bet because medical care is something people need all the time. And while healthcare real estate isn't necessarily enjoying the same boom as industrial real estate, it's still a solid corner of the market to target.
These are just a couple of examples. The point is that REITs make it possible to invest in real estate without assuming the risk of owning your own properties. And so they may be a good bet for you.
Don't forget those dividends
For many people, the goal of investing in real estate is to eventually set themselves up to sit back and collect passive income. If you own an income property and outsource its management, you could do nothing and wait for your monthly rent checks to roll in.
REITs offer a similar money-making opportunity in the form of dividends. Because REITs are required to pay 90% of their income to shareholders as dividends, you can look to them as a steady source of passive income.
Breaking into real estate can be scary. But as a next-generation investor, it pays to consider the many benefits of putting money into REITs. Not only might they pay you consistently as they gain value over time, but they can be a great way to diversify your holdings and help you meet whatever long-term goals you set for yourself.
