3 REITs To Buying During Real Estate Crash
When the real estate market crashes, a lot of people panic and sell their properties at any cost. But savvy investors know that this is the perfect time to buy up some property of their own – especially if they invest in REITs.
What are REITs?
REITs (Real Estate Investment Trusts) are special funds that trade on the stock market like a stock but are made up of income-producing real estate.
You can think of REITs as a stock that holds a bunch of different real estate properties. So by investing in a REIT, you become part owner of whatever real estate properties they have within the fund.
Are REITs a good investment?
REITs can be a great alternative to investing in real estate without going through the process of buying a property yourself. There is also a much lower barrier of entry when compared to buying your own property.
You don’t have to worry about taking out any loans or saving up for a downpayment. And you can sell your REITs much faster than you can sell real estate properties.
REITs generally offer a great source of dividends, paid out by the cash flow the properties generate.
The upside to REITs:
Low barrier of entry
High dividend yield
Fast liquidity
Although REITs can be a great way to get real estate exposure, they have some downsides.
You don’t get all of the traditional real estate tax benefits when you invest in REITs. And your dividends are generally taxed as ordinary income, which means they do not qualify for the lower capital gains tax rate.
Most REITs don’t have much stock appreciation and depend on dividends to make money.
Rising interest rates can also hurt REITs since higher interest rates can negatively impact real estate values and cash flow.
The downside to REITs:
Low stock appreciation
No real estate tax benefits
Rising interest rates tend to hurt REITs
How do I start investing in REITs?
You can invest in any publicly traded REIT using any stock brokerage. As long as the REIT is publicly traded on the stock market, you can invest in it.
Here are some of my favorite stock brokerages:
Robinhood (Best user interface + easy to use)
TD Ameritrade (Great customer support + retirement accounts)
Vanguard (Some Vanguard Funds offer zero expense fees)
3 REITs To Buying During A Real Estate Crash:
Here are 3 popular REITs to consider. These REITs are well established and have offered high dividend payouts for years. And would likely be a great long-term hold to buy during any real estate crash. As these REITs hold premium real estate.
$O - Realty Income Corp
$O holds around 6,500 commercial real estate properties under long-term lease agreements. The clients renting properties from $O are top tier.
Dividend Yield: 4.31%
$O - Top 20 Real Estate Clients:
Source: $O Fact Sheet
$VNQ - Vanguard Real Estate (REIT ETF)
If you want broad exposure to a bunch of different REITs, consider this vanguard fund.
$VNQ seeks to include exposure to the overall U.S. real estate market. The fund consists of real estate management and development companies and REITs.
Dividend Yield: 2.83%
$VNQ - 10 Largest Holdings:
Source: $VNQ Fact Sheet
$SPG - Simon Property Group
SPG is one of the largest REITs in the world.
The fund owns around 200 luxury shopping malls and several other dining, shopping, and commercial entertainment properties.
Most of the properties held in this fund are located in the United States.
Dividend Yield: 6.74%
Here are some of the malls $SPG owns and manages:
You can browse all of the malls Simon Property Group owns here.
Warren Buffet & REITs
Although legendary investor Warren Buffett isn’t a fan of being a landlord, he isn’t against investing in Real Estate using REITs. Berkshire Hathaway has owned several REITs throughout its existence.
Berkshire currently owns 2.41% of the real estate trust $STOR, which holds around 2,500 residential properties.
However, he has started to sell off this position in 2022.
Investing in Real Estate with REITs
If you want to get exposure to real estate but don’t want the headache of being a landlord, REITs can be an excellent choice. REITs are easy to buy and sell quickly, unlike individual real estate properties.
However, REITs might not be the best option if you want the tax benefits that generally come with Real Estate and more asset appreciation.
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Want to keep learning? Check out some of my other blog posts:
As Always: Buy things that pay you to own them.
-Josh
Blog Post: #040
