Having Online REITs in Your Portfolio
Real estate investments can potentially strengthen your portfolio in a number of ways. They can diversify your portfolio, provide returns and appreciation potential, hedge against inflation, and, in some instances, may even provide you with tax benefits. In short, real estate investments can be a strong part of your long-term investment strategy.
Convinced about the importance of including real estate in your portfolio? It's time to get specific.
Within the real estate investment sector, a real estate investment trust, (or “REIT”), can be a great tool for investing without having to purchase and manage income properties on your own.
Rather than incurring the expensive buy-in or dealing with the headache of tenants, REITs allow you to invest in an entire portfolio of income-producing properties using a pooled vehicle. You also don't have to worry about putting a house or unit for sale on the market when you're ready to get rid of it; instead, you simply sell or redeem (if possible) your REIT shares.
REIT investors can also potentially enjoy dividend yields in the long term with the overall market averaging around 12.29% over 15 years. Additionally, a REIT is required to distribute at least 90% of its taxable income back to shareholders. As long as the account is performing well, you can possibly see dividends regularly. Keep in mind that the historical performance of REITs is not indicative of future results and their performance may vary.
Historical Disadvantages of REITs
Before you start Googling the best REIT to add to your portfolio, let's first talk about some of the disadvantages that have historically come along with this particular type of investment.
There are several different types of REITs to choose from:
- Public, Exchange-Traded REITs, while extremely liquid, are listed on a stock exchange and consequently move with the market. This could introduce more volatility and greater fluctuation than other types of REITs.
- Private REITs aren't traded but they do come with much higher investment minimums and are generally open to accredited investors only.
- Public, Non-Traded REITs have historically charged expensive upfront fees, generally ranging between 10% and 15%. This means that a lower portion of your investment amount goes to working capital in actual real estate, which could potentially lower your overall return.
Why Online REITs
Online REITs, including RealtyMogul.com's MogulREIT I, try to address many of the issues historically associated with other types of REITs.
Unlike private REITs, they are more accessible, with a relatively low minimum investment amount, and are open to non-accredited investors. MogulREIT I's initial entry point is just $2,500, which is thousands of dollars less than most other private real estate investment opportunities.
The fees are also lower compared to non-traded REITs due to the distribution channel: Online REITs don't require the traditional, labor-heavy channels, instead bringing the transaction directly to the consumer. This can cut upfront fees to a third of what they were in the past.
Online non-traded REITs can also appear to bring a level of stability to your portfolio because they don't move with markets like traded REITs do.
Another modern perk of the online REIT experience is just that: they're online. You can have complete access to your investment portfolio any time of day through a secure account. In fact, logging into your online REIT account is as easy as logging into your personal banking account. Investors can access their legal documents and financial information in a user-friendly dashboard while tracking the performance their investment. You also receive convenient, automated distributions, along with notifications as new investments are added. Online REITs leverage technology and data so that you always understand the latest developments with each of your investments. Finally, online REITs provide investors with an in-depth level of transparency that may not necessarily be available in other types of REITs.
Online crowdfunding has opened a new avenue for real estate investors by offering access to an array of individual deals across the country. In fact, we demonstrated the power of an online investment platform when we recently reached $200 million of funded debt and equity deals and $40 million of principal and returns distributed back to our investors.
Now online platforms are complementing their offerings with online REITs, offering investors an opportunity to take advantage of the real estate market through a diverse and expertly selected portfolio, all online.
While all investments include a degree of risk and do not guarantee a return of any sort, consider an online REIT next time you adjust your portfolio.