Invest in Real Estate From the Comfort of Your Computer Chair


There are always ways to make money in the real estate market whether the market is headed up, down, or sideways. Today’s market is poised for a rebound. And if you want to get in, you can do so without the occasional aggravation of tenant problems.

One way to do this is through real estate investment trusts (REITs). There are many different REITs trading shares on the major stock exchanges. So far in the first quarter of 2010, REITs have out performed the S&P 500 by double, according to National Association of Real Estate Investment Trusts. Individual REITs have seen recent share price increases of 300% and more. Most but not all, REITs invest in commercial real estate – high rise office buildings or large apartment buildings or new construction. This is a way for the smaller guy to get into major commercial real estate investing.

By law, all REITs are required to distribute 90% of their annual net income to share holders. This is appealing to investors wanting income generated from their real estate investment rather than waiting for profit from appreciation. People in retirement use this investment to generate income without being an active landlord.

One thing REIT investors need to be aware of is because the properties are not held by individuals, they are not available for section 1031 tax deferral. However, if the shares are bought through a retirement account (IRA, 401k, etc.) the income goes back into the retirement account tax deferred until it is withdrawn after retirement.

If a diverse portfolio is something you are after, investing in a mutual fund of REITs is something for you to look into. The up side is you will be invested in a diverse group of commercial real estate holdings. Typically, there is a minimum investment required that starts around $2,500. A good way for a beginning commercial investor to get started without a large investment.

The down side to REIT mutual fund investing is the second layer of fund management expenses. The mutual fund is buying shares of active REITs that are managing the properties. There are expenses associated with managing the properties and managing the REIT itself. Then the mutual fund has it’s own management costs. Obviously, the second layer of management costs reduces the profit paid to investors.

Not all REITs are traded on a public stock exchange. Private REITs seek to increase profits by not having to comply with SEC regulations. But because they are not publically traded they are less liquid. You can’t call up your stock broker and tell them to sell your shares in the REIT. Generally, the REIT arranges for the buying and selling of its own shares. The REIT matches willing buyers with a willing sellers that agree on the value of the shares.

Additionally, most, if not all states, do have some regulation of private REITs. Typically, these are in the form of investor suitability requirements. For instance, in California, you must have a net worth of at least $225,000 excluding your personal possessions such as your house, car, and other belongings. That means you’re going to need to have it in the bank, own a business, have other real estate holdings, or own something like stocks valued at more than more than $225,000. Another way you can meet the California requirement is by having an annual income of at least $60,000 and a net worth of at least $60,000. If this interests you, be sure to check out the private REIT investment requirements in your state.