How to Invest in an REIT


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Dear SmallIvy,

I am writing to you in the hope of getting some advise.

I have been for months trying to get a REIT, to contact a REIT, to invest $20,000 that I got from a real estate deal. It has been impossible until now.

Could you give me a couple of addresses/contacts ?

Is it a good idea to put all your money in one single REIT ?

Thank you,

Rose

Dear Rose,

Real Estate Investment Trusts, or REITs, are similar to exchange traded mutual funds, except they invest in real estate properties instead of stocks or bonds.  Like exchange traded funds, or ETFs, they trade on the stock market.  The easiest way to invest is to start a brokerage account with one of the brick-and-mortar or online brokers, then put in an order to buy shares of the ETF you select.

Finding a good REIT is a bit more tricky.  Personally, I subscribe to Value Line Investor Survey, which includes a section of reports on REITs.  You can also start with this list from Forbes and then research a bit further.   Once you find an REIT you’re interested in (or two), simply put in orders with your broker to buy them just like a stock.

As far as whether it is smart to put all of your money into a single REIT, it really depends on how you would answer the same question with a mutual fund investment.  Because by buying an REIT you are buying several properties, instead of just one, you will have some diversification, making it nearly (but not totally) impossible for your investment to go to $0.  If you put all of your money into one house and a sink hole opens up under it, your entire investment is gone.  If you buy 100 properties in different cities, while the value of the set of properties could decline, it is unlikely that you would lose your entire investment in every house.

Still, it is possible to pick a mutual fund that lags the rest of the markets for years, and thereby miss out on the opportunity to make market returns.  Likewise, you could pick an REIT that invests in apartments, only to see the apartment market sour while retail properties take off.  It is therefore safer to spread your money out to different types of REITs unless you feel particularly strongly about a certain real estate segment.  A good option is to buy an REIT mutual fund, such as the Vanguard REIT ETF, which would then invest in several different REITs.  Again, you would buy it just like a stock through a broker.  You could also buy into the REIT mutual fund by sending money to Vanguard directly.

Hope this helps.

Happy investing,

SI

Got an investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment. 

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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