A survey by Gallup revealed that 36% of Americans believe that real estate is the best choice for long-term investments, surpassing stocks, gold, and savings accounts in popularity. This trend highlights the growing preference for real estate investment trusts (REITs) as a starting point for potential investors.
The study was conducted over the phone with 1,001 adults in America from April 1-22 and highlights the popularity of real-estate as a long-term investment. After real estate came stocks or mutual funds, followed by gold, and then savings accounts or certificates of deposits. Only a small percentage of adults preferred bonds and cryptocurrency.
The Appeal of REITs
REITs are an enticing choice for individuals looking to enter the real estate world without lots of cash. Certified financial planner and CEO of Francis Financial in NYC, Stacy Francis, praises REITs for their “low barrier to entry.”
An REIT is a publicly traded company that channels funds into income-producing real estate, whether residential or commercial. Investors can grab shares of REITs just like stocks or dive into REIT mutual funds or ETFs. “Some REITs let you get in for as little as $25,” Francis highlighted, pointing out their easy access.
Emotional and Practical Considerations
Real estate tugs at the heartstrings of many investors. “No one gets all misty-eyed over stocks,” Francis noted. “But people definitely get emotional about real estate.” This bond often turns into a wish to leave a tangible legacy, like a house, for future kin.
However, stepping into the landlord shoes means a hefty commitment of time and cash. Kashif Ahmed, CFP and president of American Private Wealth in Bedford, Massachusetts, warns would-be landlords about the upkeep, insurance, and repairs that come with property management.
REITs also bring the perk of diversification, usually investing in a mix of properties and regions, which helps spread the risk of investing in just one place or property. Investors can tap into different real estate slices like shopping malls, warehouses, and office buildings. But it’s key to note the REIT’s specific focus. “If a REIT is all-in on shopping malls nationwide, and malls hit a rough patch, you’ll feel it,” Francis pointed out.
Portfolio Integration and Tax Considerations
Experts recommend integrating REITs into a diversified investment portfolio, with Francis advising that REITs should comprise no more than 25% of one’s holdings. It’s essential to research REITs thoroughly to understand their potential impact on your portfolio and tax situation.
REIT dividends are often subject to ordinary income taxes, similar to wages. For those not needing immediate income from dividends, Ahmed recommends placing REIT investments in tax-sheltered accounts like IRAs to boost tax efficiency.
Real estate’s enduring allure as a long-term investment is underscored by Gallup’s recent findings. For those wanting to ride this wave, REITs offer a practical and easy way into the market. Careful research and diversification are key to handling risks and boosting returns with any investment you make. By understanding both the emotional and financial sides of real estate investment, individuals can make smart decisions that fit their long-term financial goals.
