Real Estate Was The Last Thing I Wanted To Invest In -- Until I Saw This

My wife and I have been tempted a number of times. 

We’ve seen our friends manage to do it — and with great success. 

We’ve read news stories and seen TV reports about doing it as well.

But over the years, my wife and I held firm. We discussed it several times and each time, we’ve decided it’s just not for us.

What is it?

Being a landlord.

No, thank you. 

Rowdy tenants. Leaky roofs. Late rent payments. Costly remodels. It’s fine to watch other people struggle on those ubiquitous home-repair TV shows, but it would never ever be something I’d want to deal with in real life.

We know that we’re passing up on a potentially lucrative revenue stream — especially in a boomtown like my hometown of Austin, Texas. However, my wife and I have remained firm in our stance that being a landlord isn’t for us.

But the lure of the burgeoning real estate market is strong. What, we wondered, if we still want in the real estate business? Is there a way for us to get in the door without all the landlord drama? 

Turns out there is… 

They’re called real estate investment trusts or REITs. In short, they’re ways for you to be a landlord without ever fixing a roof or haggling over a late rent payment.

REITs are companies that invest in real estate — everything from residential mortgages and loans to shopping malls and office buildings — and return most of the profits back to their investors in the form of dividends. 

In fact, the law requires REITs to distribute at least 90% of their taxable income to their investors. And when the housing market starts rolling — as it is now in much of the country — that can mean big money.

My colleague Nathan Slaughter, who writes StreetAuthority’s High-Yield Investing newsletter, is living proof. In that newsletter, he recently picked the diversified REIT Annaly Capital Management (NYSE: NLY). It’s a stock that is known for its high, double-digit yields. By the time he closed the position, he and anyone who invested with him was up 209%.

But Nathan is not only devoted to finding the highest-yielding investments. He also wants to make sure those investments are safe to put in your portfolio. That’s part of why REITs are so appealing to him. (Click here to find out more in his report High-Yield REITs With Recession-Proof Dividends.) 

There is a downside to know, however. 

REITs don’t pay income taxes. 

No big deal, you might say… So the REIT doesn’t pay income taxes. That shouldn’t affect my wallet, right? 

Wrong.

Here’s how… 

Because they don’t pay income taxes, their dividends are usually fully taxable. That means that any dividends you get from the REIT will be taxed as ordinary income, up to 35%. Most REIT dividends don’t qualify for the reduced 15% dividend tax rate.

Yikes.

But don’t worry… Even after you pay the extra taxes, the yields most REITs provide still beat the pants off the taxable-equivalent yield you’d get from most other common stocks. And it’s even possible to avoid these extra taxes altogether if you keep the REITs in a tax-advantaged account such as a Roth IRA.

So now, real estate investing is an excellent option for me and my wife. We don’t have to worry about late rent checks, while we can profit from a booming market. We are re-examining our holdings, and I have a feeling REITs will end up playing a role in our future.

The Investing Answer: Take the leap into REITs, but don’t just focus on the yield. Find out as much as you can about the REIT itself.

Nathan Slaughter, who I mentioned earlier, recommends paying close attention to not just yields, but also to the firm’s growth prospects, valuation level compared to its peers, and property portfolio. 

For example, if you’ve seen that consumer spending is beginning to boom, it may be a good time to invest in a REIT that focuses on retail centers. Or since demand for rental properties has grown recently, a REIT that focuses on apartments could be a good idea. 

After carefully screening hundreds of REITs, Nathan has selected several that he believes offer the best profit potential. Find the ticker symbols for these three high-quality REITs in his report, “High-Yield REITs With Recession-Proof Dividends.” Click here to get it.

This article originally appeared on InvestingAnswers
Author: Matt Schulz
Real Estate Was The Last Thing I Wanted To Invest In — Until I Saw This