Investing in Real Estate the Safe Way

Looking to invest in real estate but concerned about the possibility of losing your shirt if the deal falls through? A safer, more efficient option may be investing in REIT mutual funds.

Simply put, a REIT mutual fund is a company that buys, develops, manages, and sells real estate assets, thereby avoiding you the hassle and complication of doing it yourself. Also, with a REIT mutual fund investment, you can invest in many different types of real estate, in many different places, at the same time.

Investing in REIT mutual funds has its advantages and disadvantages. One of the main advantages is the liquidity of REIT mutual funds. Liquidity, which is the ease of converting an asset into actual cash income, is a great perk of REIT mutual funds because they are easily bought, sold, and traded on major exchange markets. So if you wake up one day and decide, “I’ve had it with REIT mutual funds,” you can sell is pretty quickly through a broker or an internet e-market.

Also REIT mutual funds qualify as pass-through entities, which are companies who are able to distribute their income cash flows to investors without taxation at the corporate level. And because REIT mutual funds are pass-through entities, whose main function is to pass profits to investors, most of their business activity is generally restricted to the collection of rental income, making them pretty safe investments.

A brief history of REIT mutual funds

REIT, or Real Estate Investment Trust, (pronounced “reet”) mutual funds date back to the 1880s when investors could avoid double taxation because trusts were not taxed at the corporate level if the income was distributed to beneficiaries.

However, in the 1930s tax laws were passed which reinstated double taxation for REIT mutual funds, decreasing the popularity of this type of investment until the 1960’s when Eisenhower signed the 1960 real estate investment trust tax provision which reestablished the special tax considerations.

REIT mutual funds were good to go again! Since then, REIT mutual funds have increased in popularity throughout the 1980’s, with other reforms and barriers removed throughout the years. This trend of REIT mutual funds reform continued to increase the interest in and value of REIT mutual fund investment.

Today there are over 193 publicly traded REIT mutual funds operating in the United States, with assets totaling over $500 billion! Approximately two-thirds of these REIT mutual funds are currently traded on national stock exchanges.

Who can I trust to tell me more about REIT mutual funds?

A very important thing to remember is, while REIT mutual funds are thought of my many as a real estate investment endeavor; they are actually a form of publicly traded securities.

Legally, your licensed Realtor or broker is not qualified or even allowed to give you any investment advice or direction concerning REIT mutual funds. So don’t be offended if they say they can’t help you! Your best bet is going to your trusted stock broker. They have the knowledge and the credentials to be able to advise and suggest the best REIT mutual funds choices for you.

One thought on “Investing in Real Estate the Safe Way

  1. REIT mutual funds sound pretty temping…passivity, high returns, liquidity, etc. I noticed you didn’t mention the downside. Correct me if I’m wrong, but wouldn’t they fluctuate along with the stock exchange?

    A much safer approach would be to buy real estate at a cut rate price (equity capture), do the necessary repairs (forced appreciation), hold it as rental property for 3-5 years (passive income) and sell when the market is right. With a 1031 you defer your taxes, and as for liquidity, if you purchase with enough equity, you can usually do a cashout refi and still have ownership of the asset.
    In these unpredictable economic times I want control of my investments.

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