Real estate investors are often looking for ways to further diversify their portfolios. In the same way that investors who focus on publicly traded stocks don’t solely focus on one type of asset class, real estate investors often like to hold investments in varying types of real estate.
In addition to choosing between different types of real estate, many investors also like to find ways to pursue truly passive income. While purchasing, improving, managing, and liquidating properties can be profitable, it’s also incredibly time consuming. Fortunately, real estate investment trusts, also referred to as REITs, provide investors with the opportunity to not only invest in different types of real estate, but to do so in a completely passive manner.
What Is a REIT?
A REIT is headed up by an individual or company (usually a company) who oversees the purchase, improvement, management, and eventual liquidation of numerous properties.
REITs were established back in 1960, when Congress made it legal for investors to purchase shares in commercial real estate portfolios. Up until then, only accredited investors were eligible to take part in these investment opportunities, and even then they had to go through large, well-established financial intermediaries.
In most cases, REITs specialize in one particular property type. For instance, if you want to invest in office spaces, you will need to find a REIT that specializes in that type of property. If residential property is your chosen field, you can find REITs that specialize in residential properties.
Once you’ve chosen your REIT of choice, you purchase shares in the same way that you would purchase shares in a stock . Based on the amount of money that you invest, you could receive dividends in the same way that you would in virtually any other type of investment.
What Does a Residential REIT Look Like?
There are multiple types of residential REITs, but at their core, they all operate the same way. Within the REITs that purchase properties, there are often sub-specialties. For instance, some REITs specialize in purchasing single-family homes, while others purchase apartment complexes or student housing, if they are investing in an area near a college.
Investing in these options is relatively straight forward. As an investor, you find a publicly-traded residential REIT that you’re comfortable investing in. You then determine how many shares you want to purchase and make your investment. In some cases, there may be a minimum number of shares that investors have to purchase, so you’ll want to check on that as well. Once you’ve invested, you will receive a portion of any dividends generated by the trust when they distribute their dividends among investors, as well as potential capital/price appreciation of a REIT.
Residential REITs are an evergreen option for investment property, as there are always people looking for housing. Choosing a suitable REIT for your portfolio is largely contingent on your current resources, investment strategy, and financial goals. Pursuing these truly passive income opportunities can be a tool to help build your own net worth while diversifying your portfolio.