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The 8 Best REITS Couples Can Invest In Long Before Retirement
What are REITS? We explain along with 8 tips to get you started with REIT investments.

Real Estate Investment Trusts (REITS) play an important role in a well-diversified portfolio. Real estate remains one of the best ways to hedge inflation. Whether you believe the inflation we’ve seen this year is transitory or here to stay, having 5% to 15% of your investment portfolio in real estate makes sense to protect your retirement nest egg. Investing in REITS is one the least expensive and most liquid ways to gain exposure to this asset class.

For those unfamiliar with REITS, they are typically publicly traded companies that own, operate, or finance real estate assets. There are three main types of REITS: mortgage REITS, equity REITS, and hybrid REITS.

Mortgage REITS own residential or commercial mortgages on real properties. Equity REITS own the actual properties and often specialize in a particular asset type such as self-storage or apartments. Hybrid REITS own a combination of both.

REITS are required to pay out 90% of their free cash flow and are known for paying big dividends. Those regular dividend payments can provide an excellent source of passive income for couples who may be going from two salaries to one, planning for early retirement, or beginning to shift their portfolio from a growth to income orientation. Many financial planners recommend beginning this portfolio shift at least five years before retirement, but it’s never too late to start.

In today’s low interest rate environment, REITS are a compelling alternative to bonds, since they offer higher yields and the potential for stock price appreciation.

The challenge is that many couples aren’t familiar with REITS and aren’t sure how to invest in them as part of a diversified investment portfolio. Others wait until they are in their 60s or 70s and then consider REITS for passive income but miss out on the growth aspect of REITS.

There is no "perfect" age to invest. Whatever stage you and your partner are in, REITS offer growth, income, diversification, and an inflation hedge.

With that in mind, I offer the following eight tips to get you started with REIT investments so you can determine your target REIT allocation and decide which type of REIT investment is right for you and your partner.

1. Determine how much of your net worth is invested in real estate already. If you don’t know your household net worth, this is a great chance to calculate it. It’s easier than it sounds and will be a valuable reference point not just for REIT investing, but for ensuring that your overall portfolio is balanced appropriately over time. List your assets by type (cash and savings, stocks, bonds, your home and other real estate assets). Next, list your liabilities (credit card bills, auto loans, mortgages). Subtract your assets from your liabilities to calculate your household net worth. Add the value of your real estate investments less the debt owed on them to total your real estate investments. Divide the real estate figure by your total net worth to come up with the percentage of your net worth that is currently in real estate.

2. Decide how much more to invest in real estate. Many financial planners recommend investing 25% of your net worth in your home, and another 5% to 15% in other real estate assets. Now that you know your current allocation to real estate, decide how much more you’d like to invest, keeping these target asset allocations as a guideline.

3. Review with your partner. We all take on certain roles and responsibilities in a relationship. Often one partner ends up handling most of the investing and financial management. While this may be the most efficient for busy couples, it can have unintended consequences if your partner becomes ill, disabled, or other unforeseen events happen. Use this as an opportunity to review your financial position and decide together how much more you’d like to allocate to real estate.

4. Set or review your five-year plan. You’re already reviewing your current financial picture. What better time than now to review where you’d like to be in five years? Will one of you be stepping out of the workplace to help with child or elder care? Is one of you re-entering the workplace and you’ll have a second income to direct toward building your retirement nest egg? Are you planning to retire early to travel the world? Is retirement ten or more years off and your focus is growth now, income later? Knowing the broad answers to these questions will help you find the right REIT investments to fit your risk appetite, investing horizon, and growth and income goals.

5. Active or passive investing. Depending on your investing experience and the time you have to allocate to managing your portfolio, you may choose to invest in an index fund, exchange traded fund (ETF), or build your own portfolio. For many busy couples, a real estate index fund or ETF may be the best choice. Vanguard and Fidelity are both known for offering low cost index funds and ETFs, and they offer solid choices for both through real estate index funds and ETFs.

6. Growth or income focus. The good news is that REIT investing offers both growth and income opportunities, often with the same stock. Real estate appreciation and growth through acquisition offer stock price appreciation over time. If your focus is growth, equity or hybrid REITS may be your best fit because they are growth focused. They still pay respectable dividends, often in the range of 2% to 4%. If your focus is income, mortgage REITS (mREITS) may be a great bet, especially in this yield-starved environment. mREITS generally pay the largest yields in the sector, often 5% to 10%, and some will even pay you monthly.

7. Do your research. If you’re going to take an active approach to REIT investing, ensure you know the underlying asset class. This means understanding the type of property the REIT invests in and the trends that may impact performance. Retail, office, and hospitality took a big hit during the early stage of the pandemic. Industrial REITS have been a beneficiary because of the rise in e-commerce. As we discussed earlier, mREITS pay the biggest dividends, but they may see more stock price volatility and even dividend cuts when interest rates rise or there is significant market volatility due to their use of leverage and risk of margin calls.

8. Consult your investment advisor. This could be a financial planner, CPA, or private banker. If you have an advisor, review your plan with them before investing, especially if you decide to build your own portfolio rather than going with a real estate index fund or exchange traded fund.

For busy couples, REITS are a great way to get exposure to real estate and boost your dividend income without owning real estate directly. Diversifying your portfolio with real estate remains one of the best hedge’s against today’s inflationary environment. REITs are a valuable addition to your retirement portfolio whether you are in retirement or planning five, 10, or even 20 years ahead. Do your due diligence before investing.

DeAnn O’Donovan, CEO Asset Management for University Bank, has more than 20 years of experience in the field of real estate finance and banking. A recognized expert in the specialties of real estate investment trusts, community banking, mortgage and real estate finance, crowdfunding, business turnarounds, and passive income, she currently leads the company’s real estate-backed private placement offerings—a division that caters to high net-worth investors. No stranger to media, O’Donovan is a regular contributor to divorcemag.com. She has been featured in Chief Executive Magazine as a leading female CEO. She also has appeared on national broadcasts such as Tasty Trade. In addition, she has been a guest on countless podcasts, addressing a variety of real estate and finance topics which include purchasing residential and commercial real estate; passive income; financial independence and early retirement; real estate syndications; crowdfunding; private placement offerings; investing in distressed assets; servicing, and social responsibility. Recent appearances include Real Estate Espresso, Invest Like a Boss, Cash Flow Ninja, and Joe Fairless. For more information visit her LinkedIn profile.


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