Investment properties have the potential to generate monthly income and appreciation as part of a diversified portfolio. But you don’t have to be a hands-on landlord. You can make passive real estate investments and avoid the 3 a.m. calls about clogged toilets!
You’re planning ahead for retirement, and determined to invest in a diversified basket of stocks, bonds and alternative investments. Maybe you have no exposure to income properties now, or maybe you’re a landlord either as your primary business or as a part-time investor. If it’s the latter, you’re likely ready to shed the responsibilities in favor of a passive approach that allows you to try to stress less and enjoy more.
There are a range of passive real estate investments with the potential to help you achieve your goals, dreams and objectives. Here’s a look at four of them.
Real Estate Investment Trusts (REITs)
The market for publicly traded REITs is long established, and many people access the market through their retirement plans and stock brokerage accounts. REITs are generally companies that own and operate real estate, so you’re investing in the company, not just the underlying real estate. REITs pay out their income in the form of dividends, which are taxable.
The biggest downside to REIT investments — aside from their high correlation to the overall stock market and the volatility that entails — is the inability to defer taxation on any capital gains from the sale of shares. In other words, when you sell your REIT shares, you will have to pay capital gains tax on any gains.
Delaware Statutory Trusts (DSTs)
With DSTs, which are a form of direct real estate ownership, you have the ability to defer capital gains tax on gains so long as the gains are reinvested in other investment properties. (The reinvestment occurs in the form of a 1031 exchange, which your tax or legal adviser can tell you more about.) That’s one reason but not the only reason to consider DSTs.