.18 Income Producing Assets Part 2 of 2
May 14, 2018 By The Money Wizard
12. Real Estate Investment Trusts (REITs)
Ever dream of being a landlord, but the idea of tenant calls and plumbing fixtures has you running for the hills?
Enter REITs, the stocks of the real estate world. Real Estate Investment Trusts are companies which own, invest in, or manage income generating real estate properties. REITs trade on the stock exchange, and you can purchase them just like you would the share of any other company.
Personally, I’ve invested in Vanguard’s REIT Index fund (VGSLX) for several years, which has yielded between 3-4% in that time. The coolest part? With the purchase of one share, I’m suddenly the landlord of residential rentals, commercial real estate, public storage units, and everything in between.
By law, REITs have to distribute over 90% of their earnings to shareholders, which can lead to some seriously high dividend rates. You have to be careful though, as high yielding REITs tend to be extremely volatile.
Want to get really crazy with it? You could buy REITs using 20% of your own money and 80% borrowed money. This approach does a decent job replicating the same leverage experienced when buying a rental property with a 20% downpayment.
Around this time, it’s important to remember the gold rule of finance – there’s no such thing as increased returns without increased risk.
Generating income through farmland investments
You don’t have to be a farmer to profit off farmland.
39% of all farmland in the United States is rented or leased, so if you can’t grow an ear of corn to save your life, you still have a chance to get a little agricultural with your income streams.
By purchasing a piece of agricultural real estate, you can then rent out your land to farmers looking to expand their operations. This allows the farmers to maintain their capital for other uses, while you collect monthly or quarterly rent checks.
Of course, you can’t just buy a random piece of real estate and hope to start growing crops on it. (Sorry, your backyard garden in city limits won’t cut it.) In fact, the land’s soil conditions have to be right for commercial crop production, and nearly all farmable real estate is already accounted for. In fact, premier pieces of farmland, like high quality cropland in the middle of Iowa’s corn belt, can sell for $10,000 per acre.