Interested in investing in real estate? US News and World Report recently compiled a list of four important things you should know about investing in real estate. If you own your home, you may be considering buying real estate securities. Here is the list of why and how some real estate securities may be worthwhile additions to your investment portfolio:
- You can diversify your portfolio. Returns on real estate investments have low correlations to other investments, such as the broader stock and bond markets, says Jay Jacobs, director of research at exchange-traded fund provider Global X in New York. That means that when other stocks change in value, real estate investments may not move at all. This would make your portfolio more stable overall.
- It can provide great dividends. Real estate investment trusts (REITs) tend to pay high dividends.
- Real estate provides tax benefits. Jacobs also says that REIT has advantages regarding taxes. When the REIT distributes at least 90% of its income to stockholders, it does not pay any corporate tax. The investor instead pays the tax of the dividend as income.
- Do not overdo it. Jacobs says alternative investments, such as commodities, master limited partnerships and real estate should make up only 20 percent of an overall investment portfolio, with real estate being only a quarter of that. Real estate should be 5 percent or less of your entire portfolio.
It is also important to know that there are different types of REITs. There are REITs for office buildings, college dorms, mobile parks, and more. American Campus Communities invests in dorms, and sees a 3.9 percent dividend.
Jack Ablin, chief investment officer at BMO Private Bank in Chicago says investors might want to consider the iShares Dow Jones U.S. Real Estate ETF (IYR), which holds a wide basket of 119 real estate securities, mainly REITs.
While it may seem that there are many complicated things you should know about investing, clearly different types of real estate investments can be very beneficial. If you are interested in looking at properties or talking to a RE/MAX Paradise Agent, contact us today!