36% of Americans think real estate is the best long-term investment still, according to data!
According to a recent Gallup survey, 36% of Americans think real estate is the best long-term investment. The survey, conducted through telephone interviews with 1,001 U.S. adults between April 1-22, revealed these preferences surpasses stocks or mutual funds (22%), gold (18%), savings accounts or certificates of deposit (13%), bonds (4%), and cryptocurrency (3%) as viable long-term investments.
For those interested in real estate, real estate investment trusts (REITs) are an attractive option due to their “low barrier to entry”, says Stacy Francis, a certified financial planner and CEO of Francis Financial in New York City.
REITs are publicly traded companies that invest in various types of income-producing real estate, both residential and commercial. Investors can buy shares in publicly traded REITs, REIT mutual funds, or exchange-traded funds (ETFs), similar to purchasing stocks. REIT investors typically earn through dividend payments. “You can invest in for as little as $25”, Francis added.
Real estate holds a unique emotional appeal for many investors, unlike stocks or bonds, says Francis. Some individuals view it as a legacy to pass on to their children, preferring to leave them a tangible asset like a house rather than a stock portfolio.
“No one gets super emotional about stocks, but individuals definitely get emotional about real estate”, Francis said.
However, becoming a landlord requires significant financial and time investment. Managing property, ensuring proper insurance, and maintaining the property can be costly. “It’s not easy being a landlord. There’s far more to it than just getting a monthly check”, said CFP Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts.
REITs also provide a way to diversify investments. Depending on the company, investors can gain exposure to hundreds or even thousands of different properties or regions. It allows investment in various types of properties, such as shopping malls, warehouses, and office buildings. However, investments can be affected by regional or sector-specific downturns.
“If there’s a REIT and it’s investing in shopping malls across the country, and shopping malls are not doing well … you’re going to feel that. You’re not going to be protected”, Francis said.
Real Estate vs. Your Portfolio
To effectively include real estate in your long-term investment strategy, thorough research on these kinds of funds is essential, advises Francis. While REITs can diversify a portfolio, “they shouldn’t be all of it”. Some financial advisors recommend limiting them to no more than 25% of your portfolio, she added.
Be mindful of the tax implications. REITs often distribute 90% or more of their profits as dividends, which can be taxed as ordinary income. “It’s as if those dividends came to you and your paycheck at work”, Francis said.
If you don’t need the additional income, consider holding REITs in a tax-sheltered account, such as an individual retirement account (IRA), suggests Ahmed. “Asset location matters”, he emphasizes.