The Smart Way to Invest in Real Estate: REIT Mutual Funds

REIT Mutual Funds. If you want to invest in real estate but don't want to take care of the properties themselves, real estate investment trusts (REITs) or REIT mutual funds are a great option. You can own shares in commercial or residential real estate without having to worry about collecting rent or making repairs. You can learn about these funds online, then send away for the prospectus for each one that interests you. If you still have questions, you can call and talk to a financial advisor.

The best thing you can do to understand how REIT funds work is to talk to a financial advisor. This will help you make the best investment decisions for your retirement needs. REIT funds don't have to pay taxes on their corporate income, but they have to give their investors 90% of their profits in the form of dividends. With the money you get from dividends, you can add more stocks to your portfolio or invest in other ways.

There are two types of REIT mutual funds that you should be aware of: those that are actively managed and those that are not.

Actively managed REIT funds buy and sell shares of real estate all year long, based on a strategy for investing that is based on market research. Actively managed REIT funds have higher maintenance fees and expense ratios because of all the buying and selling that goes on. Most actively managed REIT funds have expense ratios that are greater than 1%.

REIT funds that are passively managed buy and hold shares based on a REIT index. This means that there isn't much buying and selling going on during the year. On the other hand, passively managed REIT funds have lower fees and expenses because the shares are held for a long time after they are bought. The cost ratio can be as low as 0.26 percent.

You should also talk to your financial advisor about redemption fees. Fees for selling shares are used to keep investors from selling their shares too often. Some REIT fund managers charge fees when you sell your shares, but not all of them do. The ones that do charge up to 1% if you hold your shares for less than a year.

You know that diversification is the key to having a portfolio that is well-balanced. You and your financial advisor should plan to put between 10 and 20% of your total assets into REIT funds. Real estate can make you a lot of money, but the market is still very tight, so you shouldn't put too much money into it. This should show up in your portfolio. Your financial advisor should make sure that you have a wide range of investments to reduce risk and loss.

You can also keep your REIT fund in different kinds of accounts. Some pay out dividends that can be re-invested without being taxed, and others pay out dividends every three months. You will have to pay taxes on these accounts and report your capital gains on your tax return.

REIT mutual funds that hold these shares give you the diversification and income stability you need to protect your financial future.