Can You Live Off Of REITS? (What you Need to Know) -

REITs have become an increasingly popular investment vehicle. For many, a REIT is a great way to invest in the housing market without having to take on the burden of tracking down properties to own and manage. For the most part, a REIT will pay out fairly consistent dividends too. It is no wonder so many people wonder whether you can live off REITs. That’s what we are going to discuss.

Can You Live Off Of REITs?

It is certainly feasible to live off of REITs.

REITs are great insofar as the fact that they are going to deliver yearly dividends. REITs, legally, have to return 90% of their taxable income to shareholders (i.e. their profit).

Just like any other investment, if you own enough shares in a REIT, then you will be able to see a bit of cash flowing in. Enough cash flowing in, and you could make a decent amount of money from a REIT. This could be enough cash to live on.

Some people may find it incredibly difficult to buy enough REITs to have enough cash rolling in to cover their day-to-day expenses, but we are certainly not going to say it is impossible. You can live off a REIT, but you will tend to need a rather sizeable sum of cash to invest in the REIT in the first place.

What Are The Risks of Attempting To Live Off REITs?

As with most investments, there are no guarantees. While there is an obligation for the REIT to payout 90% of its taxable income, the housing market can be unpredictable. If there is a crash in the housing market, then you could potentially receive nothing from your REIT. Anybody that has ever been through a recession will know that the housing market value can be wiped out seemingly overnight. If this happens when you are attempting to live off a REIT, then you could end up with zero income at the end of the year.

You should also remember that selling a REIT can be tough. While it is an investment, it is going to be a very niche investment. While there are big REITs out there that you may be able to sell on, the vast majority of them are incredibly niche. Finding a buyer is going to be tough. This means that, essentially, once you own a REIT you are going to be stuck with it. You can’t really hop from one REIT to another REIT in a way to build up cash like that. You genuinely have to rely on dividend income from the REIT, and this is something that can be quite risky to do.

Finally, choosing the right REIT can be tricky. With a REIT, you are essentially asking somebody else to invest in real estate for you. We won’t lie. There are some REITs that are awful at investment, and some that can be a little bit too shady in terms of how they pay off their dividends (they use shareholder funds rather than property income), so you are absolutely going to want to do your research here.

How Do You Reduce The Risk of REITs?

If you want to increase your chances of being able to make a stable income from a REIT, then we suggest that you do your research. Spend a long time looking for a reputable REIT that has proven that they are able to deliver consistent returns to their shareholders. Obviously, you can never guarantee that you will get those consistent returns, but you still shouldn’t be investing blindly.

You will also want to ensure that you choose a REIT that diversifies its portfolio. If you are investing in a REIT that throws all of its cash into residential properties, then avoid it. Residential properties are prone to crashing hard during a recession. You want to ensure that there is a bit of diversification with recession-proof properties e.g. schools, hospitals, etc. You will also want to ensure that you have those funds spread across multiple REITs. This way if the returns are a bit lower than expected with one investment, you have the others coming in.

Remember, you will also have to invest a lot of money to see any sort of return from a REIT to the point where you could say that you can cover an income. A lot of money. So, you may not want to quit your job right away. Slowly invest and build up that income stream. Only when you know that you have enough money flowing in, can you really quit your job.

Final Word

You can live off of a REIT. There is absolutely no denying that. The problem is that it can be tough to live off of a REIT. Yes, they deliver income, but the income can be incredibly risky at times. You will need to invest a lot to get enough of a return to make money, and this can be tough for some people. Although, it is very much a case of ‘spend money to make money’.

Living off a REIT is eventually possible, but make sure that you take your time to choose a good REIT. Make sure that it is able to deliver a stable income. Keep building up your investments. If you do that, you may get to the point where you can live off of a REIT. Just don’t take that plunge right away.

FAQ

Can You Get Rich From a REIT?

It is possible to get right from a REIT. You will likely have to buy into the REIT at an early stage, though. While REITs can certainly deliver dividends, there is no guarantee of what these dividends will be. Some people get rich, others could lose their money.

Is a public REIT safer than a private REIT?

Yes. Publicaly-listed REITs tend to be much safer than their private fund counterparts. Although, they do deliver lower returns. This can make it tougher to earn a living from them.

Can You Live Off Of REITS? (What you Need to Know)