REITs: Learn About This Easy Way to Get Into Real Estate Investing

Investing in real estate is a powerful option for physicians looking to diversify their portfolio.

While active tactics like developing, managing and flipping properties can be great for wealth accumulation, they require significant capital, research, effort, and time.

For busy physicians who are new to investing and want to tap into this sector, passive real estate investing strategies like buying REITs can get you on the path to building wealth without the hands-on work of property management.

What are real estate investment trusts (REITs)?

Real estate investment trusts (REITs) are companies that operate a portfolio of income-generating real estate properties. There are several types of REITs across various sectors of real estate.

For example, some REITs buy, hold and manage residential properties. Others focus on industrial or commercial spaces, hotels, healthcare facilities and self-storage to name a few. Some REITs are publicly traded, others are privately held. Here, we will focus on publicly traded REITs.

Examples of REITs include:

• Prologis, Inc. (PLD): A logistics real estate company that manages commercial warehouses and other spaces globally.
• American Tower Corp (AMT): A global communications real estate company focused on wireless communication infrastructure, primarily wireless and broadcast towers.

Buying REITs doesn’t mean you own the properties themselves. Rather, you are investing in companies that own, operate or invest in a collection of real estate assets.

How to buy REITs

You can buy REITs the same way you buy stocks in your brokerage or retirement accounts. And they are liquid assets, meaning you can sell them anytime. This is notable because real estate is typically considered an illiquid investment, meaning it takes time and effort to “get your money out” of it. You can’t put your house on the market one day and expect a cash payment for it the next.

And similar to ETFs and mutual funds, publicly traded REITs are registered with the Securities and Exchange Commission (SEC). REITs tend to offer higher dividends than other publicly traded stocks. By law, they have to pay 90% of their income out to shareholders.

Tax and fee considerations

But REIT dividends usually incur more taxes. That’s because they’re non-qualified dividends, which are taxed at the same rate as your labor income (the maximum marginal tax rate is 37%). Qualified dividends, which are paid out from common stock shares, are taxed at the same rate as capital gains, which is a maximum of 20%.

In buying REITs, there are no additional fees beyond brokerage fees. REIT management fees are built into the overall internal operating expenses of the company, so it’s important to research the REIT you want to invest in to understand the efficiencies of their business.

So is it worth it to invest in REITs?

It can be! Make sure to research the company as you would when making any investment.

Benefits of buying REITs include:

• High liquidity: you can buy and sell publicly-traded REITs easily on stock exchanges
• Over the long term, REITs have outperformed the S&P 500
• Portfolio diversification into real estate without actively buy, sell or managing properties

Drawbacks

• REIT investors don’t have insight into the management of individual properties
• Market volatility and interest rates could impact value of REITs
• Fees are expressed as the company operating costs, which may not be transparent
• REIT dividends are subject to higher taxes than those from stocks, mutual funds, ETFs

REITs offer an easy entry point into the real estate market for physicians looking to diversify their investment portfolio. While researching the right mix of REITs may sound overwhelming at first, buying into a diverse collection of REITs across different types of real estate could add depth to your portfolio and protect its value against fluctuations in portions of the market.

Join the Discussion

What questions do you have about buying REITs? Does it seem worth it to you? Which type of real estate would you want to invest in or are curious to learn more about? Let us know in the comments.

Myriam Robinson-Puche is a personal finance writer based in Brooklyn, New York. She has written about how to build wealth through personal and collective solutions for Morning Brew, MarketWatch, and more.