Want to Invest in Real Estate? Consider REITs

As we continue to mature and focus on our careers, we may start to prioritize building wealth. Many people use retirement accounts and the purchase of stocks and bonds to grow their money over time but there are other ways to build wealth. Another type of investment to look into is real estate. Although there are many different types of real estate investments, one option to consider is real estate investment trusts also known as REITs.

What are REITs? Real Estate Investment Trusts (also known as REITS) are large funds that are full of real estate investments. These investments can be single-family homes, multifamily homes, apartments, or commercial buildings. Just like you can purchase an individual stock from one company, you can also purchase an individual REIT, which is a small share of a company that owns various forms of real estate. I prefer to invest in stocks via index funds and I also prefer to invest in REITs through index funds. A REIT index fund is a large fund full of smaller REITs that are each invested in many different types of real estate. When you invest in REIT index funds you are a partial owner of several different types of real estate investments, just like when you invest in other index funds you are a partial owner of several different types of stocks or bonds.

Why are REITs a good option? REITs are another type of investment option that can help you make a profit on your money, especially the money you have in retirement accounts. Many people use their employer-sponsored 401Ks or IRAs to invest in various types of stocks and bonds. REITs give you a chance to add index funds that are full of real estate deals. Adding real estate to your investment portfolio can make your portfolio more diverse (since you’re adding another investment class), increase your profits (since they have the potential to make you even more money each year), and add increased protection for your investments (since it can shield your money from some of the day-to-day changes and volatility of the stock market).  For example, there may be times when certain stocks and industries lose some of their value, but real estate prices don’t change as often. Regardless of the economy, everyone needs a place to live.

How do REITs compare to other types of real estate? REIT index funds are very large real estate funds full of smaller real estate deals and each of those smaller deals are invested in many different types of real estate. By investing in REIT index funds, you own a small part of hundreds if not thousands of real estate deals. Unlike investing in real estate directly by purchasing homes or buildings alongside other investors or with your own money, when you invest in REITs you are much more removed from the daily operations of the properties. You are not making decisions on which properties to purchase, how to manage/renovate them, or when to sell them. Because you have less responsibility, you make less profit than more direct investors. However, you also have less risk. If one property fails to sell in a timely manner you are not out of hundreds of thousands of dollars. REITs give you a chance to get started in real estate and diversify your portfolio in a safe, less-aggressive, more “hands-off” way.

How do they compare to other types of index funds: REITs are similar to other types of index funds that are full of stocks and bonds. Because they are so similar to these other investments, you can usually add REIT index funds to your retirement accounts or purchase them the same way you purchase other index funds. In terms of investment returns, the percentage return on your profit can vary from year to year, but over a longer span of time, REITs tend to do pretty well. Over the past 5 years, investors who had REITs made over 15% profit on their money, those who invested solely in index funds with stocks made an average of 10% profit of their money. Past performance doesn’t guarantee future returns, but REITs can certainly be a good type of investment to have in your portfolio.

FYI: If you’d like to learn more about REIT index funds check out Vanguard, Fidelity, or other investment institutions. If you’d like to read about individual REIT stocks to consider, check out this article.

The Importance of Networking: Why I Starting Going to Real Estate Meetups

Last year around this time I had a lot on my plate. As a graduating medical student, I was making the finishing touches on my residency application and prepping for the mandatory hospital rotations needed to complete my degree. With all of that going on, I still made it a priority to attend real estate meetups once a month. I went to these groups for 5 main reasons:  

1. I needed to learn new skills. Unlike people who choose to focus on one job or skill for the majority of their lives, I want more. Instead of working a traditional job into my 50s I want to acquire passive income through real estate investing. Acquiring this passive income through real estate allows me to continue building wealth for my family while also providing me with the flexibility I crave, whether that means working part-time to have children or simply creating space for me to pursue less lucrative passion projects. Since I didn’t grow up around real estate investors, I needed to learn some background information and acquire a whole new skill set. Going to these real estate meetups put me in direct contact with people who had these skills that I could learn from.

2. I needed to expand my network. If I ever wanted to achieve my goal of building wealth through real estate, I had to start doing things I’d never done. This meant thinking differently and surrounding myself with people who had already achieved what I was looking to obtain. Along with learning new skills, going to these meetups gave me a way to expand my network so I could interact with real estate investors and emulate people who had already achieved these goals.

3. I needed mentors. My parents didn’t use real estate to build their retirement savings and none of my close family members had the experience needed to guide me through the process. Despite the numerous podcasts I listened to and books I read, I needed more. I still had questions that were unanswered and concepts I wanted clarification on. Going to these meetups were a great solution. They helped me find mentors who could “show me the ropes” build relationships with people who could serve as advisors. Because of these meetups, I met people who volunteered to teach me how to find, evaluate, and finance deals.

4. I needed to change my thinking. Along with mentorship, my outlook on real estate reached a whole new level when I started going to meetups. The people I met at these groups kept me inspired in the midst of doubt. They gave me insight on how to invest in real estate in ways that could increase my monthly cash flow and help me save money on taxes. They also kept me optimistic about my goals and my ability to eventually create wealth. Being around people who were constantly discussing deals and sharing advice on pitfalls to avoid helped me learn more than I ever could have imagined. These meetups changed my view of real estate investing and made me even more committed to my goals.

5. I needed access to deals. The final reason I needed to expand my network was to actually NETWORK. Some of the best real estate deals are ones that take advantage of “leverage” and involve multiple investors. Companies raise money from rich investors and fund lucrative investments as a group. Unfortunately, it’s illegal to advertise these deals to the general public due to their high risk and buy-in costs. The only way to actually find out about these deals is to meet the people who create them or invest in them. Going to meetups played a key role in allowing me to cultivate business relationships with people who could give me access to those deals.

Long story short: the meets-ups help me expand my network. I needed to expand my network to continue to meet potential mentors and surround myself with people who could keep me motivated to reach my goals, safeguard against doubt, and get me to think more like an investor. Lastly, I needed to expand my contacts and cultivate relationships with people who could be potential partners in the future. 

Have you ever gone to a real estate meetup group? If so, what was the experience like for you?