Are REITs good for retirement?
REITs are a Potent Source for Retirement Income
Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.
REITs play a critical role in improving investment returns and reducing risk in target date funds. A portfolio including REITS can significantly boost retirement savings.
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
Typically, REIT dividends are taxed individually as ordinary income, but you can avoid the tax burden if your investment grows within a Roth IRA. Investment earnings are tax-free in a Roth IRA – including REIT dividends — so you may end up keeping significantly more of your earnings than you would with a REIT alone.
A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.
Summary of Why Investors May Not Want to Invest in REITs
But, REITs are not risk free. They may have highly variable returns, are sensitive to changes in interest rates, have income tax implications, may not be liquid, and fees can impact total returns.
REITs historically perform well during and after recessions | Pensions & Investments.
To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
REITs with business interests in defensive industries can be attractive recession investments. Dec. 9, 2022, at 4:07 p.m. REITs that operate in the health care or infrastructure sectors might be more durable thanks to the evergreen nature of their tenants.
How long should you hold a REIT?
REITs should generally be considered long-term investments
This is especially true if you're planning to invest in non-traded REITs since you won't be able to easily access your money until the REIT lists its shares on a public exchange or liquidates its assets. In many cases, this can take around 10 years to occur.
The Cheapest Option: REITs—$1,000 to $25,000 or more
These are securities and are traded on major exchanges like stocks. They invest in real estate directly, either through property purchases or through mortgage investments.
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
REITs do not guarantee income or total performance. Diversification in REITs does not guard against loss of income nor loss of principal. REITs are subject to economic volatility.
Bad REIT earnings tend to run afoul of Section 856, which provides that at least 95% of a REIT's gross income must be derived from “rents from real property.” It also provides that at least 75% of its gross income must be derived from that source.
Avoiding REIT dividend taxation
If you own REITs in an IRA, you won't have to worry about dividend taxes each year, nor will you have to pay taxes in the year in which you sell a REIT at a profit.
At that rate of return, a monthly investment of $300 in REITs would grow into $1 million in about 30 years. If you invested more money into REITs or those producing a higher average annual return, you could become a millionaire even faster.
The generous dividend payments enjoyed by REIT investors may look particularly attractive moving forward. With rate cuts on the horizon, dividend yields for REITs may look more favorable than yields on fixed-income securities and money market accounts.
Are REITs Good Investments? Investing in REITs is a great way to diversify your portfolio outside of traditional stocks and bonds and can be attractive for their strong dividends and long-term capital appreciation.
Still, in a general sense, they are income securities and do trade like income securities. You can usually count on high-yielding REITs moving up when rates are moving down.
Are REITs a good investment in 2024?
March 5, 2024, at 3:47 p.m. REITs are public companies with large real estate portfolios, and are known to havesizable dividends. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.
The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec.
Buffett has not shown much interest in real estate investing in the past. He and Charlie Munger, vice-chairman of Berkshire Hathaway, actively dismissed it for many years. However, Buffett has recently invested in REITs as part of his passive income strategy. Berkshire Hathaway Inc.
What this means is that REITs are ideal borrowers for banks. They are exactly who they want to do business with because they know that the risk of a REIT bankruptcy is extremely low. Just look at the past. There have been very few REIT bankruptcies over the past 50+ years.
He says: “Our analysis shows REITs perform very well historically in periods of high inflation. I could easily see global REIT returns in the low double-digits over the next 12 months – and if the economic situation turns out to be more positive it could be considerably more than that.”
References
- https://www.quora.com/I-want-to-earn-1-000-USD-every-month-from-dividends-How-much-do-I-have-to-invest-and-where
- https://turbotax.intuit.com/tax-tips/investments-and-taxes/tax-tips-for-real-estate-investment-trusts/L0tW3ad6C
- https://fnrpusa.com/blog/reit-investing-pros-cons/
- https://www.reit.com/investing/reits-and-interest-rates
- https://www.usatoday.com/story/money/columnist/krantz/2012/10/25/reit-real-estate-property/1637063/
- https://www.investopedia.com/ask/answers/060215/what-average-debtequity-ratio-real-estate-companies.asp
- https://www.investopedia.com/articles/markets/102715/6-reits-pay-dividends-monthly.asp
- https://starlightcapital.com/en/insights/impact-of-rising-interest-rates-on-reits
- https://www.nasdaq.com/articles/do-this-for-$4000-in-dividend-income-every-month
- https://www.pionline.com/interactive/reits-historically-perform-well-during-and-after-recessions
- https://money.usnews.com/investing/articles/best-reits-to-buy
- https://www.nasdaq.com/articles/want-an-average-of-%24100-per-month-in-super-safe-dividend-income-invest-%2413800-into-the
- https://groww.in/p/real-estate-investment-trust-reit
- https://blog.massmutual.com/retiring-investing/reits-portfolio-invest
- https://www.nasdaq.com/articles/heres-why-2024-could-be-great-for-reits:-4-stocks-to-buy-now
- https://www.nuveen.com/en-us/insights/real-estate/tax-benefits-and-implications-for-reit-investors
- https://www.eisneramper.com/globalassets/pdfs/2019-9-Passive-and-Real-Estate-Activities.pdf
- https://www.1031crowdfunding.com/qualified-reit-dividends/
- https://money.usnews.com/money/retirement/articles/how-can-i-earn-100-200-or-500-per-month-in-guaranteed-income-in-retirement
- https://www.irs.gov/pub/irs-pdf/i1120rei.pdf
- https://www.fool.com/the-ascent/buying-stocks/taxes-on-brokerage-account/
- https://fnrpusa.com/blog/why-not-invest-in-reits/
- https://streitwise.com/reit-tax-advantages/
- https://finance.yahoo.com/news/now-good-time-buy-reits-170731808.html
- https://realassets.ipe.com/special-reports/can-reits-thrive-amid-high-inflation/10062138.article
- https://am.jpmorgan.com/us/en/asset-management/adv/insights/portfolio-insights/alternatives-education/tax-advantages-of-public-nonlisted-reits/
- https://www.morningstar.com/funds/role-real-estate-investments-portfolio
- https://adstach.com/content/news/news_276_file_link.pdf
- https://www.realized1031.com/blog/are-reits-a-good-investment-during-inflation
- https://monocotwealth.com/investment-solutions/real-estate-investment-trust-reit/
- https://www.nerdwallet.com/article/investing/reit-investing
- https://www.investopedia.com/financial-edge/0712/how-much-money-do-you-need-to-invest-in-real-estate.aspx
- https://crsreports.congress.gov/product/pdf/IF/IF11820
- https://www.quora.com/How-long-do-I-have-to-own-shares-in-a-REIT
- https://www.1031crowdfunding.com/should-you-hold-reits-in-an-ira/
- https://www.law.cornell.edu/wex/real_estate_investment_trust_(reit)
- https://smartasset.com/retirement/reit-in-roth-ira
- https://www.icicidirect.com/fd-and-bonds/real-estate-investment-trust
- https://www.robomarkets.com/blog/stock-market/top-stocks/top-10-monthly-dividend-stocks/
- https://www.reit.com/investing/investment-benefits-reits/reits-and-dividend-income
- https://smartasset.com/investing/how-reits-are-taxed
- https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
- https://medium.com/crypto-and-money/7-proven-ways-to-make-5-000-9-000-per-month-in-passive-income-1aafbf025154
- https://www.thebalancemoney.com/how-are-reit-dividends-taxed-5192935
- https://seekingalpha.com/article/4605132-reits-will-go-bankrupt-not-so-fast
- https://www.investopedia.com/articles/investing/031915/what-are-risks-reits.asp
- https://finance.yahoo.com/news/500-every-month-passive-income-130041730.html
- https://www.classlawgroup.com/securities-fraud/investment/real-estate-investment-trusts/getting-out-of-a-non-traded-reit
- https://www.ftb.ca.gov/file/business/types/corporations/help-with-corporations.html
- https://fundrise.com/education/reits-101-a-beginners-guide-to-real-estate-investment-trusts
- https://www.reit.com/data-research/research/nareit-research/reits-critical-retirement-portfolios
- https://www.reit.com/investing/why-invest-reits
- https://finance.yahoo.com/news/3-best-reits-buy-now-164122870.html
- https://www.investopedia.com/articles/pf/08/reit-tax.asp
- https://rsmus.com/insights/industries/real-estate/abcs-of-reits.html
- https://smartasset.com/investing/how-much-to-invest-in-reits
- https://www.morningstar.com/personal-finance/which-investments-keep-out-your-taxable-account
- https://www.schwab.com/stocks/understand-stocks/reits
- https://omahadailyrecord.com/content/buffett%E2%80%99s-berkshire-hathaway-bets-real-estate-stock-buybacks
- https://finance.yahoo.com/news/monthly-income-reits-yields-8-160704382.html
- https://www.mossadams.com/articles/2023/07/reit-real-estate-investments
- https://www.fool.com/the-ascent/taxes/what-is-the-reit-dividend-tax-rate/
- https://www.irs.gov/taxtopics/tc404
- https://www.sofi.com/learn/content/reit-investing-pros-and-cons/
- https://smartasset.com/investing/investing-200-a-month-how-much-will-you-make
- https://www.linkedin.com/pulse/advantages-risks-investing-reits-blackcollie-capital
- https://www.nerdwallet.com/article/taxes/dividend-tax-rate
- https://www.schwab.com/retirement-portfolio
- https://seekingalpha.com/article/4673082-what-i-wish-i-knew-before-investing-in-reits
- https://money.usnews.com/investing/real-estate-investments/slideshows/best-reits-to-buy-for-a-recession
- https://www.fool.com/research/reits-vs-stocks/
- https://money.usnews.com/investing/articles/how-to-invest-when-interest-rates-are-cut
- https://www.fool.com/the-ascent/taxes/reit-taxation-basics/
- https://www.troweprice.com/personal-investing/resources/planning/tax/fund-specific/qualified-reit-dividends.html
- https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/reit/private-reits/
- https://www.wealthmanagement.com/alternative-investments/fund-managers-are-bullish-reits-2024
- https://www.experian.com/blogs/ask-experian/pros-cons-investing-in-reits/
- https://www.morningstar.com/personal-finance/best-investments-taxable-accounts
- https://www.concreit.com/blog/reit-tax-advantages
- https://finance.yahoo.com/news/genius-ways-1-000-month-105500970.html
- https://www.reit.com/investing/investment-benefits-reits/reits-and-inflation-protection
- https://www.withum.com/resources/reit-distribution-requirements-what-happens-if-requirements-are-not-met/
- https://ca.finance.yahoo.com/news/much-invest-2-000-monthly-160000919.html
- https://www.1031crowdfunding.com/recession-resilient-investment-options/
- https://money.usnews.com/investing/articles/best-high-yield-reits-to-buy
- https://www.ramseysolutions.com/retirement/real-estate-investment-trust
- https://lyonswealth.com/blog-details/how-much-money-do-i-need-to-invest-to-make-3000
- https://www.piramalrealty.com/blog/post/the-pros-and-cons-of-investing-in-reits/
- https://medium.com/@Levente22/9-smart-passive-income-ideas-to-make-3-000-per-month-e15154bd558e
- https://seekingalpha.com/article/4636210-reit-crash-more-they-drop-more-buy
- https://www.nasdaq.com/articles/if-you-invested-$1000-in-sp-global-10-years-ago-this-is-how-much-youd-have-now
- https://www.cnbc.com/select/what-to-know-about-reits/
- https://www.cnbc.com/2020/01/07/how-much-money-youd-have-if-you-invested-500-dollars-a-month-since-2009.html
- https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp
- https://www.nasdaq.com/articles/3-real-estate-stocks-that-could-make-you-a-millionaire
- https://www.sec.gov/files/reits.pdf
- https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm26040
- https://crekb.com/reit-dividends/
- https://www.medicaleconomics.com/view/the-negative-outlook-on-reits-is-overblown
- https://www.reit.com/investing/investing-reits/taxes-reit-investment
- https://www.cfo.com/news/the-good-the-bad-and-the-reit/668299/