Investing in real estate is a great way to build a diverse portfolio, enjoy passive income, and meet the various financial goals you set for yourself. But there's more than one way to get into real estate, and my go-to choice actually requires a lot less work than flipping houses, managing a vacation property, or overseeing a long-term rental.
If that sounds good to you, you'll want to listen to this key piece of advice.
Look beyond actual properties
It's a big misconception that investing in real estate means having to go out and own or flip an actual property. It's more than possible to invest in real estate without owning properties. All you need to do is load your portfolio with REITs, or real estate investment trusts.
REITs are companies that own and operate different types of properties. Industrial REITs, for example, manage fulfillment centers and warehousing space. Healthcare REITs operate urgent-care facilities and hospitals. And retail REITs operate shopping centers and mall properties.
The beauty of investing in REITs is that you really don't have to do anything other than research the companies you're looking to buy shares of, similar to how you'd vet a stock. Once you own REITs, you can sit back and wait for your steady dividend payments to roll in. You don't have to deal with the hassle of maintaining properties, dealing with tenants, or processing rent payments.
In fact, one thing that makes REITs so appealing is that they tend to pay higher dividends than your average stock. That's because REITs are actually required to pay out at least 90% of their taxable income as dividends.
But that's not the only way to make money with REITs. If you load up on quality companies, the value of your REIT shares could rise over time. Hold those REITs for years, and you could end up having a sizable amount of wealth.
An easier way to become a real estate investor
You might think that investing in real estate is complicated and time-consuming. But if you opt to focus on REITs, you can seamlessly build a portfolio and then sit back and wait for it to earn money for you.
This isn't to say that there's no value in owning income properties or flipping houses. But if you'd rather take a more hands-off approach to real estate investing, REITs are the clear way to go.
REITs may also be a more suitable investment if you consider yourself risk-averse: While you can lose money with REITs when you own REIT shares, you're not responsible for managing actual buildings.
When you own an income property, you're the one who's financially responsible in the event that things break down. And if you embark on a house-flipping project that goes awry, you're the one who will end up footing the bill for the added costs.
With REITs, there's none of that stress. And that may align better with your general approach to investing.