Do you need a broker to buy REITs?
As referenced earlier, you can purchase shares in a REIT that's listed on major stock exchanges. You can also buy shares in a REIT mutual fund or exchange-traded fund (ETF). To do so, you must open a brokerage account.
REITs pool capital of numerous investors (just like a mutual fund) to invest in large-scale, high-value income producing real estate. This makes it possible for individual investors to earn income/dividends from real estate investments without having to buy, manage or finance any properties themselves.
You can invest in a publicly traded REIT, which is listed on a major stock exchange, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that participates in the non-traded REIT's offering. You can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.
Your company will need at least 100 investors to be classified as a REIT. You don't necessarily need to get all 100 up front, since the IRS only requires you to meet that threshold by the beginning of the REIT's second tax year.
REITs must prioritize short-term income for investors
“They pay out stable dividends, provided the properties are doing well,“ says Stivers, the financial advisor from Florida. In exchange for more ongoing income, REITs have less to invest for future returns than a growth mutual fund or stock.
Accordingly, if you are investing directly through the stock market, there is no minimum investment requirement. However, for investing through Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs), the minimum investment requirement is between â‚ą10,000-â‚ą15,000.
According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
If you've got $1,000 to invest, but you don't like the unpredictability of the stock market, there are a number of ways you can put that money into real estate. The rise of REITs and real estate crowdfunding has made it possible for you to become a real estate investor without being a real estate owner yourself.
| # | Name | M. Cap |
|---|---|---|
| 1 | Prologis 1PLD | $96.26 B |
| 2 | American Tower 2AMT | $80.17 B |
| 3 | Equinix 3EQIX | $69.43 B |
| 4 | Welltower 4WELL | $55.75 B |
Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.
How much does it cost to start a REIT?
Since they aren't publicly available and don't register with the SEC, it's difficult to pinpoint specific investment minimums. However, investment firm Edward Jones says minimum investments for private REITs can range from $1,000 to $50,000.
A REIT will be closely held if more than 50 percent of the value of its outstanding stock is owned directly or indirectly by or for five or fewer individuals at any point during the last half of the taxable year, (this is commonly referred to as the 5/50 test).
While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value. Once a REIT is closed to the public, REIT companies may not offer early redemptions.
REITs historically rebound when interest rates pivot and have the potential for rent growth. Realty Income, Agree Realty, VICI Properties, Essential Properties Trust, and American Tower are strong picks for long-term growth and income.
| Symbol | Fund name | 1-year return |
|---|---|---|
| BRIUX | Baron Real Estate Income R6 | 12.08% |
| JABIX | JHanco*ck Real Estate Securities R6 | 11.07% |
| RRRRX | DWS RREEF Real Estate Securities Instil | 9.26% |
| CSRIX | Cohen & Steers Instl Realty Shares | 9.84% |
How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
This generally means that they're restricted to institutional investors or individuals with at least $1 million in assets or income of at least $200,000 annually. Lack of liquidity -- Once you invest in a private REIT, it can be difficult to cash out.
The Housing Partnership Equity Trust, which includes Denver-based Mercy Housing, LINC Housing Corp. in Long Beach, and Las Vegas-based Nevada HAND, is the country's first REIT to be owned and operated by nonprofits and the second to focus on affordable housing.
Private REITs are not registered with the Securities Exchange Commission (SEC) and are not regulated by the SEC. There is very little public information on these REITs, and generally, only high net-worth individuals can invest in such types of REITs.
Many investors who want to tap into the real estate sector compare REITs to actual, tangible real estate. REITs—or real estate investment trusts—are corporations that act like mutual funds for real estate investing. You can invest in a REIT without having to own or manage any property yourself.
