Today I will share with you a way to invest in real estate without much capital.
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When you hear about real estate, you will probably think of this
Or this one
Right?
Correct, buying or selling real estate or owning a rental property
is a type of real estate investment that everyone is familiar with
However, to buy a house in the US is not easy for everyone
Especially for those of you who live in California
in states where house prices are high
you have to have a down payment, good credit score
and you must have a stable income to buy a house
So, when it comes to buying a home in the U.S., it's a whole process
And we have to plan for it
Today, I will not talk about the traditional style of real estate investment
I will talk about another way to invest in real estate
with more flexibility and less capital
That is REITs
What are REITs? REITs stands for Real Estate Investment Trusts
REITs are companies that own real estates that can generate income
For example, there are companies that will build houses, build hospitals, build malls for rent
There are companies that will build offices for lease
Some companies will build hotels, and some companies will build apartments, etc.
These companies are called REITs
These companies will have stocks
And their stocks will trade normally on the stock market as well
If you buy stocks of these companies
It is similar to the fact that you have contributed capital to build businesses
Some of the benefits of REITs you should know before you start investing
Number one, REITs have very high dividends
By law, REITs must payout at least 90% of their net earnings to shareholders as dividends
For example, their income is $100,000/year
Then they are required to deduct $90,000 to pay dividends
So REITs often have very high dividend yield
The average dividend yield of REITs is about 5%
While the dividend yield of S & P 500 is only 2% or less
Dividend yield is a percentage of profit
we get based on every share that we have
For example, Company A's stock price is $100/share
and its dividend yield is 3%
that means every year,
They will pay me $3 dividends based on each share of stock I have
I have already done a video about dividend and dividend yield
I will leave the link above, you can check it out.
The profits that REITs make, mostly come from leasing premises, offices, hospitals, etc.
And these businesses will sign long-term leases
So the dividends we receive are mostly stable, and predictable
For example, you buy stocks of Apple
The dividends they paid you
will be based on their annual profit
but we don't know how many iPhones they sell each year, right?
we only know the amount of dividend received after they summed up the revenue
REITs are different
since the leases are long, and there is a clear annual rental contract
We can somehow guess their profit every year
REITs are a great option if you want to get regular and high dividends
The second benefit is that stocks of REITs have great potential
Real estate is an asset that has value increasing over time
The market can go up or down, but in the long run
then the value of real estate will increase
Why do I dare to say so with certainty?
Think about it
In this world, whatever has a limit is that it has a price
Why does gold price keep increasing, and money buying power keep decreasing?
It's because the amount of gold is limited
You can only dig gold, you cannot make gold
But the money can be printed
So the price of gold goes up and the price of money buy power goes down
Similar with real estate
For thousands of years
the area of ​​the earth is only 196.9 million square miles
The land did not expand, but the population increased day by day
So real estate is an asset that would always goes up in value
REITs are the companies that own these real estate properties
and when real estate goes up
the value of the company and stocks will also increase
That is obvious
The third benefit is that it is easily accessible to commercial real estate
The main reason REITs are created
is for small investors to invest in assets that are out of reach
Think about it
Buying a residential house is already very difficult for many people
Very few people can buy an apartment to rent out
Or you can buy a piece of land to build a hospital to rent
For small investors like us, that is not possible
Thanks to REITs
We are able to start investing in real estate
and especially commercial real estate
When buying a share of REITs
You are one of the owners of hundreds of malls and hundreds of apartments
The fourth benefit is that it is very easy to buy and sell
For ordinary real estate,
We spend a lot of time buying and selling
For example, if you want buy or sell a house
It takes you weeks, or months, to complete that transaction
But REITs are the exact opposite
You can buy or sell REITs at any time,
Just 1 click
The only disadvantage of REITs
That is the dividends we receive each year
will be taxed in the same way as income tax
So if you want tax benefits, you can buy REITs in IRA or HSA accounts
I've done a lot of videos on IRA and HSA accounts
I will leave the link above if you want to check it out
How do we invest in REITs?
You can buy stocks of REITs
in any investment account
It could be a Traditional IRA, Roth IRA
HSA, or a taxable brokerage account
REITs are separate companies, and they will different tickers
For example Realty Income, the ticker is O
The current price is about $61/share
Dividend yield is 4.6%
Or as STORE Capital, the ticker is STOR
Current price is about $27/share; dividend yield is 5.26%
Or Main Street Capital, ticker is MAIN
Current price of $30/share, dividend yield is 8.12%
And there are many other companies, I just mentioned these 3 as examples
Surely you are also wondering if I am currently investing in REITs or not
And what companies am I buying REITs from, right?
YES. I am currently investing in REITs
But I don't buy stocks of individual companies
but I bought the REITs ETF
Currently, I am investing in 2 ETFs and 1 Index Fund of REITs
The first ETF is VNQ, this is real estate in the U.S
This ETF has a expense ratio of 0.12%
And the current price is about $81/share
This year, this package suffered a 12% loss.
In 3 years, profit is about 2%
in 5 years, about 5% profit
in 10 years about 8% profit
and since the inception returns about 7%
If you invested $10,000 in 2010
then at the present time you will have about $22,000
In this ETF, it contains about 181 stocks of many different companies
when you click on this Distributions
then they will show you the dividends they pay each quarter
they will pay dividends every 3 months
and the last time they paid $0.59/share
The second ETF that I invest in is VNQI, a foreign real estate
Expense ratio is also 0.12%.
And the price at the present time is about $49/share
At the moment, this package they cut out dividends
This year, they have lost about 12%.
In 3 years, the loss is about 2%
in 5 years, the profit is about 3%
in 10 years, the profit is about 4%
When I bought this package, I was around March
so now I have a little bit of profit
but they already cut the dividend, so I don't know whether to keep it or not, or sell it
I'm still thinking
In this ETF they contain about 698 stocks of many different companies
And you can learn more about these companies
I have made a video that shows you how to find different ETF packages
If you want to learn more, I will leave the link at the top of the screen, you can click it.
The third package that I invest in is the Index Fund in Fidelity
The ticker is FSRNX
Expense ratio is 0.07%
If you invested in this package in 2010
If you invested $10,000 in this package,
then at the moment you have about $17,000
Currently this year it is making a loss
is because of illness, so house prices go down
Currently it is at a loss of about 22%.
but since this package was established, it still has a 6% profit.
So if you keep the long term, there's nothing to worry about
I am planning to sell this package, because I think it is similar to the VNQ package
so I am also thinking
If you want to check the dividends, please click on the Distributions
So this side, this is the dividend list they just paid recently
Last time they paid about $0.11/share
Investing in Real estate traditional style is one of my goals in the future
But while I am preparing, I will also invest in REITs
to enjoy the benefits that real estate brings
What do you guys think about REITs?
Have you ever invested in REITs?
Please comment below to let me know.
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