Low-interest rates thanks to the Federal Reserve electing to keep interest rates near zero through the year 2022 can give rookie real estate investors the opportunity to diversify their portfolios with tangible, real assets. However, not everyone can own a piece of real estate just yet and one option can be real estate investment trusts (REITs).
“Unlike prior options, the next two ways to invest in real estate really are passive,” a Bankrate article noted, citing ways investors can get in on the real estate space. “Buying a REIT, or real estate investment trust is a great option for those who want the returns of real estate with the liquidity and relative simplicity of owning a stock. And you get to collect a dividend, too.”
Seven reasons to use REITs for real estate exposure, according to Bankrate:
- “Less money needed to start, potentially only $20 or $30, depending on the stock
- No hassles managing a property (e.g., no 3 a.m. phone calls)
- Very liquid, and REIT stocks can be sold on any day the market is open
- Transaction costs are $0, as brokers have slashed commissions
- Attractive long-term returns, averaging about 12 percent from 1998 to 2018
- Regular quarterly dividends, with the best REITs growing their payout over time
- Diversification, across many properties or even across real estate sectors”
Nonetheless, REITs don’t come without their potential risks. As such, prospective REIT investors need to perform their due diligence.
“However, investing in REITs is not without its own downsides,” the Bankrate article noted. “Like any stock, the price on a REIT can fluctuate as the market gyrates. So if the market declines, REIT prices may go with it. That’s less a problem for long-term investors who can ride out a dip, but if you need to sell your stock, you may not get what it’s worth at any single point in time.”
Here are a couple of real estate ETFs to look at:
- FlexShares Global Quality Real Estate Index Fund (GQRE): seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Global Quality Real Estate IndexSM. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to quality, value, and momentum factors relative to the Northern Trust Global Real Estate Index.
- FlexShares Real Assets Allocation Index Fund (ASET): seeks investment results that correspond generally to the price and yield performance of the Northern Trust Real Assets Allocation IndexSM. The underlying index measures the performance of an optimized allocation to the underlying funds that is intended to provide exposures to certain real assets and minimize the overall volatility of an investment in the underlying funds.
For more market trends, visit the ETF Trends.