How would I invest $20,000 today if I had to start from scratch – including real estate | Smart Change: Personal Finance
Real estate is something I’ve recently started investing in. Which is unfortunate, because I know a lot of people who have done well for themselves by investing their money in real estate from a fairly early age.
Of course, I can’t go back in time and change my investment strategy. But if I could somehow start from scratch with a giant pile of money – say $20,000 – I would eagerly become a real estate investor with a heartbeat.
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But that doesn’t mean I’m going out to buy physical real estate. Instead, I would have taken a simpler approach that can make me extremely wealthy without having to put in a lot of time or effort.
Great way to invest in real estate
I have many friends who own rental properties and earn a decent amount of money. But these friends also spend many hours each month maintaining those homes and dealing with tenants’ issues. They also dump a lot of money on repairs.
Buying physical real estate would not be a great investment option for me, simply because I don’t have the time to manage a rental property. Thus, if I were to start investing in real estate from scratch, I would immediately look at REITs, or REITs.
Real estate investment trusts are companies that own and manage various real estate portfolios. In the world of REITs, there are specific sectors in which you can invest. Industrial REITs, for example, maintain warehouses and fulfillment centers. On the other hand, healthcare REITs consist of real estate like hospitals and urgent care centers.
What I really like about REITs is that they allow you to make money without having to do a lot of work other than some initial and follow-up research. You definitely want to look at the finances of a particular REIT and see what its cash flow looks like, what percentage of its rental property is, and what plans it has to expand—just to name a few. And you’ll then need to keep tabs on your REITs once you’ve added them to your portfolio to make sure they perform up to par.
But there is a big difference between doing this and having to supervise a property. For this reason alone, REITs are profitable in my book.
But it’s not just laziness that makes REITs my preferred choice of real estate investment. Real estate trusts are also required to pay at least 90% of their taxable income to shareholders as dividends. As such, they usually pay dividends higher than your average stock.
Now I’ve been a long-time believer in investing in dividend stocks – not because I want the money from those dividends to buy things with, but because I like the idea of reinvesting dividends to drive growth. Certainly, REITs lend that.
Really solid choice
Even if you’ve been investing for years, it’s never too late to expand into the real estate world. And if owning rental property is out of your comfort zone (or isn’t something you want to do), it’s definitely worth looking into REITs.
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