Real estate is a great way to earn constant returns — but maybe you’re not cut out to be a landlord and still want to invest in real estate.
There are more ways you can do that instead of buying a couple of duplexes or trying to get renters for your own commercial real estate venture. Real Estate Investment Trusts (REITs) can be a great way perk up your investments and recession-proof your finances.
REITs are companies that own or finance income-producing real estate. REITs can help you access a variety of different types of sectors, including retail, residential, health care, mortgage and office buildings. In addition, REITs can help to build retirement investing. Here are three reasons why REITs can help you feel at peace with your retirement investing.
Reason 1: They Can Be Recession-Proof
Let’s start with the caveat that we know a recession won’t happen consistently over for the next 20 years. But right now, you may feel skittish about the economy. There is reason for it — the volatile stock market has given back some gains, the trade war is dragging on and the global economy looks like a weak link if you compare it to about 100 other points in history.
A REIT can be a saving grace for your portfolio. For example, health care REITs are a great option because clinics, medical offices and assisted living facilities will still be needed, no matter what happens in the economy. A massive percentage of the U.S. GDP is concentrated on health care, so a health care REIT can be a great way to anchor your portfolio.
Keep in mind that a potential upcoming recession won’t be the last. If you’re willing to count Wikipedia as a source, it states that there have been about 47 recessions since the fledgling United States created the Articles of Confederation. You might hit another one on your way to retirement, so be sure to keep health care REITs’ longevity in the picture.
Reason 2: They Offer Ample Diversification and Liquidity
REITs are like giant, steady boulders anchored in the side of a mountain because they offer diversification. In fact, if you want an apples-to-apples comparison, you could argue that they’re similar to mutual funds, which offer more diversification than individual stocks. So instead of investing in one commercial building that could take a tumble at any point — you’re automatically diversified with REITs.
What happens if you change your life plan and need your money earlier? For example, maybe you’re 37, plan to join the Financial Independence, Retire Early (FIRE) movement at 40 and need your REIT money in a few years. Unlike traditional real estate, many REITs are traded on stock exchanges. You get instant diversification from actual real estate assets. Liquidity can be an important part of your decision — just in case you need it.
Reason 3: Long-term Potential
REITs are a great long-term investing option. They can provide high dividend yields and can offer long-term capital. The key is to find REITs that can offer both. For example, look into Welltower Inc. (WELL $90.11), the largest health care REIT on the market. This REIT spans a wide breadth of medical care, including hospitals, clinics, assisted living and skilled nursing facilities. The company owns hundreds of health care facilities — not just in the United States, but Canada and the United Kingdom as well.
REITs Can Take Care of You in Retirement
REITs can be part of your retirement planning to go a step beyond online stock trading. The right type of REIT for each person depends on many factors. Here are two of the biggest ones:
- Find a REIT that has a strong management team.
- Look for REITs that have strong properties and stable tenants.
Do your research — it’s arguably the most important part of investing in an REIT.
Melissa Brock, personal finance expert, is the Money editor at Benzinga. She enjoys international travel and writing about personal finance and entrepreneurship.