Although the real estate market was really ugly in 2007 and 2008, investing in real estate is still a good way to diversify your investment portfolio. But if you scratched and clawed your way to save for the down payment on your house, you may wonder how you can afford to diversify in real estate. Who has the money to buy one rental property, much less several? The good news is, you don’t have to have that kind of money: You can diversify in real estate with a small amount of cash by investing in real estate investment trusts (REITs), companies set up specifically to invest in real estate. Some REITs specialize, for example, in shopping centers or office buildings, while others focus on real estate in certain geographic regions.
REITs trade on U.S. stock exchanges, so you buy shares just like you do in any other stock. For even more real estate diversification, you can buy into a REIT mutual fund or REIT exchange-traded fund (Taxing Decisions).
Like the economy and other parts of the stock market, real estate is cyclical, which means that prices cycle up and down over time. With the United States just beginning to emerge from a horrendous real estate market crash, you might blanch at the idea of investing in real estate, but it’s probably a good time to buy (see Types of REITs for reasons why).
This chapter begins with the pros and cons of investing in REITs. If you’re interested in branching out into REITs, you’ll learn about the different types. Then, the chapter ...