REIT ETFs: A Beginner's Guide to Passive Real Estate Investing

An REIT ETF is a unique investment tool that allows you to invest in real estate passively. REITs have been around for a while, and many investors have found success with them. ETFs are still a relatively new form of investment when compared to stocks or other types of funds. Therefore, many people are still learning the benefits of the ETF. When you combine the aspects of an REIT and the benefits of trading an ETF, you come up with a pretty interesting investment strategy. Here are a few things that can help you understand REIT ETFs and whether or not they could help you. 

ETF Basics

The term "ETF" stands for "exchange-traded fund." This means that it is a fund similar to a mutual fund, but it can be traded on the exchange. This gives you unparalleled flexibility in your investment options. You can buy and sell ETFs as you please, and there is great liquidity. This can give you a very diversified form of investment without running into liquidity problems like you do with some other funds. They have great volume and are traded all the time that the exchange is open. 

REIT

The term "REIT" stands for "real estate investment trust." This is basically an investment group that invests in real estate. Their investment strategy could be made up of a number of different real estate investment methods. The REIT could be based on commercial real estate, or it could be made up of single family homes. Regardless of the particular method that they use, they are investing in real estate in some capacity. 

REIT ETFs

When you combine both of these aspects into one vehicle, you are left with an ETF that owns shares in several different REITs. The ETF fund manager is free to choose a number of different REIT investment strategies to put into the ETF basket of assets. Therefore, you are investing in real estate, but you are using a very diversified strategy to do so. 

Benefits of REIT ETFs

• High liquidity--Trading with REIT ETFs presents you with a nice level of liquidity. These are traded at a nice volume on the exchange, and you can easily move them if you need to. 
• High yield--Investing in an REIT ETF will provide you with a nice yield on your investment. It is typically higher than other types of investments.
• Protect against inflation--Since real estate is a tangible asset that appreciates over the long term, you are actually protecting against inflation. As the value of the real estate goes up, your portfolio goes up.

Risks

• Real estate crashes--Sometimes the market is subject to a crash in the real estate market. When this happens, your portfolio can lose significantly. 
• Limited investment strategies--Some REITs focus too much on one particular real estate investment method. This can lead to losses if you buy an ETF that has a high percentage of shares in one area.