Invest in REITs with Individual Retirement Plan
Real estate investments have remained a profitable proposition for the past several decades. If invested in the right market, your real estate investments can boost wealth creation by several percentage points. In 1960, the government of the United States decided to offer this opportunity to the average investor by conceiving Real Estate Investment Trusts (REITs), combining real estate and stock-based investment into a single package. According to the National Association of Real Estate Investment Trusts (NAREIT), the REITs listed on the stock exchange offered annual returns of 11.1% to their investors in the last 20 years ending on December 31, 2014 against S&P 500’s 9.8% returns. If you are a small business owner or self employed individual, you can invest in REITs with your individual retirement plan.
Individual Retirement Plan: What are REITs?
Real estate investment trusts are companies or entities that either own or finances real estate for financial gains. They offer three unique benefits to its investors, including diversification, stable income stream, and benefits of capital appreciation. REITs pay at least 90% of their taxable income to their shareholders in the form of dividends and in 2014 alone, the listed REITs in the U.S. paid $41 billion in dividends.
The IRS permits individual retirement plan holders to make real estate investments through their qualified retirement plans such as Solo 401k. REITs are a feasible investment option for passive investors, especially those who are looking after their own businesses. You will need a Solo 401k account with self-direction feature, as it will allow you to leverage market conditions. Unlike physical real estate, you will not be responsible for the maintenance or repair of these properties.
What are the benefits of REIT Investments?
- Liquidity: Just like stocks, you can buy shares of publicly listed REITs. Selling or buying these stocks is simple and you can keep an eye over their regular performances.
- Dividends: It is mandatory for REITs to distribute at least 90% of their taxable income to their shareholders, making them a stable income source. You have to make sure that these dividends go back to your individual retirement plan.
- Performance: Like we mentioned earlier, the stock-exchanged REITs have outperformed S&P 500 by 1.3% in the last 20 years. Their returns have remained higher than S&P 500, NASDAQ Composite, and Dow Jones Industrials over the longest periods.
On top of it, REITs maintain a similar operational structure as that of other publicly listed companies, offering transparency in their operations.
The Urban Land Institute (ULI) Center for Capital Markets and Real Estate has released a three-year consensus forecast survey, predicting favorable conditions for the commercial real estate market. If you have owned an individual retirement plan, this might just be the right time to introduce REITs in your investment portfolio.