Investing in real estate is a great way to branch out in your portfolio and enjoy a steady income stream. And there are different routes you can take as a real estate investor.
Some people enjoy owning rental properties, and for good reason. With a rental, you can benefit from ongoing monthly payments and hang onto a property that could gain value nicely through the years.
But my approach to real estate investing centers on owning REITs, or real estate investment trusts. There's definitely money to be made with rental properties, but I've yet to dabble in them, whereas I own a number of REITs I'm quite happy with. Here's why REITs are, of the two, the best option for me.
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1. I get all the benefits without the risk
The upside of owning a rental property is collecting steady income and seeing your asset grow in value over time. Well, guess what? REITs offer those same benefits, only without the risk that comes with owning and being responsible for physical property. REITs are required to pay 90% of their taxable income to shareholders as dividends. So, a number of the REITs I hold pay generous dividends that come in on a steady, predictable basis.
Plus, just as properties can gain value over time, so too can REIT shares. Now, my plan is to hang onto my REITs for many years -- decades, in fact. So, my hope is that by the time I'm ready to sell them, they're worth a lot more money than they're worth today.
Meanwhile, by holding REITs, I don't have to take on any of the risks associated with being a property owner. I have no maintenance issues or repairs to finance like I would with a rental home. And unlike rental property owners, I don't have to worry about vacancies impacting my bottom line.
Granted, when you own REITs that end up with a lot of unleased space, their values can be impacted and, in turn, affect the value of your portfolio. But we're not talking about nearly the same direct impact.
2. I don't have to do any work
Though I don't consider myself a lazy person, I'm definitely not up to the challenge of being a landlord. And with REITs, I don't have to be.
The REITs in my portfolio didn't just land there at random. Rather, I did my research to make sure I was buying shares of suitable companies. But beyond that initial research, there's really nothing more for me to do, whereas, with a rental property, I'd have to deal with upkeep, administrative tasks, and tenant issues -- or pay a large sum of money to outsource all of that to a property manager.
The right choice for me
There's nothing wrong with investing in a rental property if that's a route you're comfortable taking. But for me, REITs are a much better bet. And if you're more of a hands-off type of investor who enjoys true passive income, you may find that they're better for you, too.
