- A Bankrate survey found that real estate is millennials’ favourite way to invest for the long term.
- Buying and managing a rental property is a good way to produce passive income, but can be a huge time and financial commitment.
- Investing in a public or private real estate investment trust (REIT) can provide exposure to the real-estate market, diversification of your investment portfolio, and regular income in the form of dividends.
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It turns out millennials aren’t as obsessed with crypto as we thought.
According to a new survey from Bankrate, over one-third of millennials say real estate is the best way to invest money they won’t need for at least 10 years, more than the share of millennials surveyed who prefer stocks, savings accounts and certificates of deposit (CDs), gold, bonds, and cryptocurrency.
Real estate can be a very lucrative investment at any age, but usually requires a huge time commitment and lots of cash – or very good credit – to get started. For busy millennials with less cash to spare, a real estate investment trust (REIT) may be an easier place to start. REITs are a good option for diversifying an investment portfolio, as they represent an entirely different asset class than stocks and bonds.
An REIT will provide exposure to the real-estate market without the time and cost commitment of buying a property to either manage or fix up and sell. Equity REITs, the most common type of REIT, allow investors to pool their money to fund the purchase, development, and management of income-producing commercial real estate. A typical REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls.
When the REIT collects rental income from its properties, at least 90% of those earnings are returned to the investors as dividends, which are then taxed as ordinary income. You can invest in REITs either in the public market or the private market.
If you want to keep your investment liquid, stick to publicly traded REITs. You can buy individual shares or invest in a mutual fund or exchange-traded fund (ETF) that holds REITs through a brokerage firm, IRA, or 401(k).
In addition to a quarterly or monthly dividend check, another benefit of investing in REITs is the potential for long-term appreciation. If the real-estate market you’re invested in gains value, your shares may, too – just like owning stock in a publicly traded company. Between 1978 and 2016, publicly traded US equity REITs returned an average of 12.87% annually, while stocks returned 11.64%. However, like any investment, returns aren’t guaranteed.
If you’re willing to part ways with your money for the potential to earn greater returns, consider investing in the private real estate market through an online broker like Fundrise.
Fundrise helps you invest in real estate projects around the US without having to actually manage them. Investors can choose a portfolio to invest in based on their goals – either supplemental income, balanced investing, or long-term growth – and earn dividends quarterly. Fundrise says its platform is best for investors who have a time horizon of at least five years.