Financial planners say not everyone is cut out to be a landlord, but there's another option if you still want to invest in real estate
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- Real estate investing requires commitment, a lot of work and cash, and a certain personality type, especially for anyone planning to rent their property to tenants.
- But, for people who don't want to directly own a property but do want to diversify their investments, financial planners suggest real estate investment trusts (or REITs).
- Many REITs pay higher dividends than stocks, and add diversification to your portfolio with real estate, making them a good option for almost anyone.
- Check out Vanguard Personal Advisor Services® to get the investment advice you need to help build the life you want »
Not everyone has the time, energy, or money to become a landlord.
While investing in real estate can be a lucrative move, it can also require a large down payment to get started, a large emergency fund for things that will invariably go wrong, and the right personality to manage tenants. That's why financial planners say this type of real estate investing isn't for everyone.
There's another way to get the benefits of owning property without the hassle, though: Real estate investment trusts, or REITs.
REITs make real estate investing as simple as buying stock
"An REIT is like a mutual fund or index fund where you're invested in quite a few different properties," explains financial planner Riley Poppy of Ignite Financial Planning in Seattle. "They're a much more cost-effective way to enter the real estate market and to get that diversification than just buying your own property."
Unlike a rental property, you simply buy the share and then let the market do the work. These funds can be purchased the same way you'd buy a stock, mutual fund, or ETF.
REITs take the hassle out of real estate investing
Anyone who owns a rental property knows the amount of risk involved, but REITs might help to reduce that. "[REITs are] a passive way to indirectly own real estate without the extra risks and costs involved," financial planner Jovan Johnson of Piece of Wealth Financial Planning told Business Insider by email.
Like other forms of real estate investing, REITs can generate passive income. "REITS typically pay much higher dividends than ordinary stocks, so this provides great cash flow opportunities," Johnson says.
The type of real estate investing that's right for you, whether through REITs or buying a property, depends a lot on the amount of time you have, your goals, and your own personal preferences. For those who aren't ready to live the landlord lifestyle, REITs could be a simpler alternative.
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