Is REIT a good option for earning passive income?

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By Phil Bradford

The year 2020 has made us realize that you need an extra income avenue to sustain yourself. Apart from your regular income, if you can earn passively, then you will be one step ahead to make yourself financially stable.

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When you are thinking about passive earning, REIT (Real Estate Investment Trust) is a good way to earn passive income and you can trust it.

Real Estate Investment Trust or REIT manages commercial real estate properties. The REITs are publicly or privately traded companies and with the money taken from the investors as an investment, they run the commercial real estate properties.

The benefit of investing in REIT is they are designated to pay 90% of their taxable income to the investors and the 90% return signifies the dividend is higher than other stock investments.

Now, you can take a look that REITs invest in what kind of property

REITs are attractive for the investors because the investors don’t have to take any burden like buying any property directly. REITs are dividend-generating passive income avenues where investors do not have any tension of buying any property.

Have a look at REITs usually hold what kind of properties:

  • Office buildings.
  • Retail buildings such as shopping malls.
  • Hotels and resorts.
  • Healthcare facilities.
  • Apartment complexes.
  • Warehouses.

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You can depend on REITs to earn passive income if it has a good management team and if there are some good properties in its hold. Then you can relax and watch the growth of your investment.

The 11 points that describe REITs is an ideal passive earning avenue

The REIT works in the same way as the stock market or the mutual fund. You will receive dividends from the company and make a profit from REIT stocks when you will sell them.

  1. The high dividend returns are the special feature of the REITs. No other investment can provide you such a high return.
  2. The upfront fee of REIT is not very much.
  3. For a newbie investor, REIT is the easiest way of starting an investment. You have to only use a brokerage account to buy REIT stocks.
  4. The investment range of REIT is comparatively lower than other investments if you make a comparison. The investment range of REIT runs from $100 to it can stretch upto several thousand dollars. REITs are an easy way to build your wealth.
  5. REITs are usually liquid investments. You will be able to buy and sell the REITs in the open market.
  6. The dividends you will earn from REIT can be increased from time to time when the asset value of REIT’s properties will increase gradually.
  7. Investing in REITs is a good option to diversify your portfolio and it can help you to reduce the volatility of your portfolio.
  8. REITs are the best alternative for those people especially the retired persons and the newbie investors who do not have adequate capital to buy and manage their property.
  9. The real estate market is usually dominated by larger corporations but REIT is giving the chance to small investors to invest in commercial real estate. Generally, REIT is the collective trust among the multiple investors that non-accredited investors can invest with minimal dollars.
  10. This long-term investment in REIT is profitable for its liquidity.
  11. Indeed, the historical performance never guarantees the future performance of REIT. Though REIT data reveals from 1977, it has earned 12% on average annually.

One important point to remember is that your income from REIT will never be taxed by the IRS as passive income. Rather the earning from REIT is considered as portfolio income and they will be taxed based on the capital gain tax rate.

Can you depend on REIT amid this uncertain time?

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In this devastating 2020, where everything is uncertain, people are almost dependent on stimulus packages, the question will come to mind that is it a good time actually to invest in REITs?

Well, financial experts are saying that if you have money in hand now then the better option for you is to invest in REITs than the stock market.

With REITs, your investment will grow in less-volatile conditions and in a stable and balanced way. It is only REIT investment that is providing you an opportunity like you can deduct up to $3000 from your taxable income if you suffer any loss.

But REIT experts are saying that you can avoid three types of REIT investment now and they are the hotel, hospitality, and retail. The hotel and hospitality business is in its bottom level currently due to tour and travel is at its lowest strata.

The same thing happened with the retail stores. Due to lockdown, nearly all the retail stores are closed so retail REITs are not much profitable now.

So, if you keep these points in mind even in this uncertain time, you can depend on REITs to earn passive income.

Can you depend on REITs during an emergency?

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Average Americans tend to use the ‘quick-money-way’ for fulfilling any emergency. For Americans, quick-money means either high-interest credit card loan or a payday loan. But both are not good for your financial health. The minimum interest rate of a payday loan is 391%. For a small loan amount, you have to pay off a ballooning interest rate.

Rather than this option, during any emergency, if you sell your REIT stock, you can get a lump sum amount most safely.

However, if you are already entrapped in payday loans then you can choose the consolidate payday loans option for now. Eventually, REIT is more dependable to you as an option to get out of any financial emergency.

Final words,

After reading the article, you may have understood that to earn passive income and for your emergency-money-requirement, there is no substitute for REITs. To invest in REITs means you will gain some tax advantages. Due to the reason of avoiding corporate tax, REITs distribute 90% of their income to the shareholders. The net result of this is higher earnings for REITs investors.

In brief, if you want to earn a passive income without taking much hassle or risk, you can depend on REITs. That is why REITs are the dependable income avenue for you even for your after-retirement-phase or if you are a rookie investor.


Phil Bradford

Phil Bradford is a financial content writer and an enthusiast. He has expert knowledge about personal finance issues and he is a regular contributor of Debt Consolidation Care. His passion for helping people who are stuck in financial problems has earned him recognition and honor in the industry. Besides writing, he loves to travel and read books.

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