Hands-off: REITs and real estate funds

Own shares of companies or funds that own real estate, without buying or managing a building yourself.

How it makes money

• Dividends from the company’s or fund’s rental income, and changes in the share price.
• No property to manage, and you can usually start with little money.

The honest risk

• Cash you need to start: Only what you choose to invest; you can start small. You can lose much of it if prices fall.
• Worst realistic outcome: Share prices fall, and non-traded REITs and private funds can be hard to sell for years.
• How long a first deal takes: Days, with listed REIT shares bought through a brokerage account.

What goes wrong on a first deal

• Prices of traded REITs rise and fall with the stock market.
• Non-traded REITs and private funds can be hard to sell and carry high fees; read the offering documents.
• REIT dividends are usually taxed as ordinary income, though most qualify for a 20% deduction (Section 199A).

Your first steps

• Read the lesson on who invests where, including how REITs work.
• Know the difference. Listed REIT shares can be sold any market day, but their prices can drop sharply. Non-traded REITs are hard to sell, and their upfront fees can reach about 9–10%.
• Private deals are often limited to accredited investors. Check the sponsor and read every document.
• Talk with a licensed financial advisor about how it fits your plan.
• Keep learning: you can move to owning property directly later.