Property pays. And it will continue to pay, even with
some of the nation’s real estate challenges.
If you have ever wondered the easiest way to get rich without developing a new technology or hitting the Powerball jackpot, look no further than the real estate industry.
Across the globe, real estate is the third most popular way billionaires
have accumulated their wealth. According to Forbes, 129 of the world’s billionaires made their wealth in real estate. The only two industries that produced more were retail (146) and finance (148).
This should seem straightforward—having income-producing properties
is a great way to earn more and boost your net worth, both through cash flows and value appreciation. Many individuals have become millionaires through real estate investing, and going down that path can still lead to fortunes today.
The only problem is being a landlord takes time and is a huge responsibility.
Sometimes, the costs associated with managing and maintaining properties can eat up all of your profits. Wouldn’t it be nice to be a landlord without dealing with calls from tenants, fixing broken walls or having to find someone to rent to in the first place?
In this chapter, I’ll show you how to get the lucrative benefits of becoming a landlord without having to personally watch over the properties or pay for any maintenance. In fact, I call it being a “digital landlord” because all transactions and business takes place over the internet. Let me explain.
But you don’t need to be a wealthy landowner to collect on property values. The stock market has created a way for investors to take part in the real estate business without all the hassles you’d associate with real estate investing.
They’re called real estate investment trusts (REITs). They
trade on the regular stock markets just like company stocks. They’re essentially holding companies that own property, like office buildings, apartments, warehouses, even just empty land. They make their money buying and selling that property, or, more typically, leasing it out — and collecting rent.
And here’s the best part — by law, a REIT must pay out at
least 90% of its taxable income to shareholders.
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To encourage groups to create REITs,
Congress gave them a fairly nice incentive—qualified REITs don’t pay a cent in corporate income tax. No matter if the REIT collects income by renting to tenants or through mortgage payments, it doesn’t pay a dime on that income. In exchange, the REIT must pay 90% of its (otherwise taxable) income to shareholders.
That gives REITs some of the highest income yields on Wall Street.
In fact, the average REIT yields nearly 4%—twice the average yield of the S&P 500. (To say nothing about the ultra-low interest rates on the average savings account or certificate of deposit.)
Because shareholders
are owners of publicly traded companies, shareholders of a REIT are landlords of the properties the REIT holds. When a business pays rent, the REIT distributes the rent to owners in the form of dividends. By investing in a REIT, you are investing in the property they own without having to do any physical labor or pay for any maintenance.
Understandably, REITs took a big hit when the real estate market went south as the financial and mortgage crisis of 2007–2008 unfolded. Back then, it didn’t matter what the underlying properties were — even profitable property investments were taken out and shot by traders and investors alike. But since the beginning of 2009 to date, the REIT market has been ascending.
Right now, with much of the globe focused on pockets of
political and economic concerns, the United States appears to be a safe haven, thanks to its economic growth, political stability and rising markets.
So not surprisingly, foreign investors are putting more and
more money into U.S. investments, including property.
According to the most recent report by the U.S. National
Association of Realtors, foreign buying of properties surged 35.19% in the most recent quarter. Meanwhile, 28% of U.S. realtors report having non-U.S. clients. And U.S. realtors with international business report that overseas transactions make up 10% or more of their companies’ real estate
closed transactions.
The leaders in foreign real estate investment flows
include China, Britain, Mexico, Canada and India, making up 54% of all foreign real estate transactions
in the most recent quarterly data.
With this demand continuing, complemented by the
continued rise in domestic-sourced real estate investment, look for the real estate market, particularly in easy-to-transact REITs, to remain robust.
Finding REITs to invest in can be tricky if you are unsure of what you
are looking for. A great source of free information is REIT.com. This website provides laws, news, research and reports regarding every REIT in the industry. It also gives the details on different REIT funds that are composed of various companies. This is a great resource to learn more information.