Buying rental properties and managing tenants along with boiler repairs and mortgage documents represent the core activities most people associate with real estate investing. This kind of work requires a considerable amount of effort and indeed it does. Imagine an investment opportunity that lets you buy property without dealing with maintenance tasks or tenant rent collection.
Residential Real Estate Investment Trusts or Residential REITs provide this exact type of investment opportunity. Residential REITs allow you to explore real estate investment opportunities without having to bear the burdens of home ownership and its associated financial commitments.
What Is a Residential REIT?
A Residential REIT is a company that owns, manages, and earns income from residential rental properties. These properties might include:
- Apartment buildings
- Student housing
- Single-family rental homes
- Retirement communities
When you invest in a Residential REIT, you’re essentially buying a small share in all the properties that company owns. It’s like buying a slice of a really big property pie.
REITs are traded on the stock market, which means you can buy and sell them just like shares of your favorite company.
How Do You Make Money from a Residential REIT?
Here’s the simple version: Residential REITs generate revenue by receiving rental payments from their property holdings. The law requires Residential REITs to distribute at least 90% of their profits to shareholders as dividends so you receive a share of rental income.
Instead of receiving rent from one property you’re earning a share of rent from hundreds or thousands of homes.
Your investment gains from a REIT can also come from rising share prices over time similar to stock investments.
Why Might Residential REITs Be a Good Fit for Beginners?
You don’t need to be a property tycoon or have thousands of pounds or dollars lying around to get started. Here’s why Residential REITs are beginner-friendly:
Low Barrier to Entry
You can often invest with just a few hundred – or even a few dozen – pounds or dollars.
No Landlord Duties
No fixing boilers, chasing late rent, or dealing with vacancies. The REIT company handles all of that.
Diversification
Instead of putting all your money into one property, you’re spreading your investment across many.
Liquidity
Because most REITs are listed on stock exchanges, you can sell your shares anytime – unlike physical property, which can take months to sell.
Are There Any Risks?
Like any investment, REITs come with risks. Here are a few to be aware of:
- Market Fluctuations: The value of REIT shares can go up or down based on market trends, interest rates, or changes in rental demand.
- Dividends Not Guaranteed: While REITs aim to pay steady dividends, these can change depending on performance.
- Interest Rate Sensitivity: REITs sometimes lose appeal when interest rates rise, as other income-generating investments (like bonds) become more attractive.
That said, they’re generally considered less volatile than individual stocks, and many people use them to add stability to their investment portfolios.
How to Get Started with Residential REITs
Getting started is easy – and a lot less intimidating than buying a house. You can buy shares in a Residential REIT through:
- An online investment platform (like Vanguard, Fidelity, or eToro)
- Your bank’s investment services
- A financial advisor
The best way to gain wider access to real estate investment trusts is to search for “residential REITs” and examine REIT-focused ETFs.
A financial advisor can guide you to select a REIT that matches your goals and risk tolerance through a brief consultation.
Residential REITs provide a great investment opportunity for people who wish to invest in property but find it inaccessible or who prefer to avoid landlord responsibilities.
Residential REITs provide an accessible and inexpensive method to start accumulating wealth through real estate investments without leaving your computer.
So the next time you hear someone say “you need to buy a house to invest in real estate,” you’ll know there’s another way – and it might just be a smarter one.