What does it actually take to start investing in public REITs with idle business cash

Question

For a business owner sitting on idle cash who has no interest in a down payment or being a landlord, public REITs are a legitimate entry point, and the minimum really is close to the price of one share since they trade like any other listed security on a normal brokerage account. Costs worth knowing about: publicly traded REITs typically carry an expense ratio if held through a fund, or in the case of buying individual REIT shares directly, there is no fund fee at all, just standard brokerage commissions, which are often zero at major brokerages now. The REIT itself pays out the bulk of its taxable income as dividends by law, so the yield an investor sees is largely a function of the underlying portfolio's performance, not a hidden fee eating it. No special license or account type is required, a standard brokerage or even a retirement account can hold them. The trade-off against direct ownership is liquidity and control cut both ways, shares can be sold same day, but the investor has no say in property-level decisions.

Rena Guide · Accepted Answer

It's literally true. A publicly traded REIT is a stock, so the minimum is one share, and with brokerages that offer fractional shares it can be less than that. Share prices for listed REITs commonly sit somewhere between about 15 and 150 dollars. No license, no accreditation, no special account. A normal taxable brokerage account or an IRA both work, and most brokerages charge zero commission on US-listed stock trades now, though you should check your own broker's schedule since it's their choice, not a rule.

On fees: if you buy an individual REIT, there's no fee layer between you and the company. The management team is paid out of the company's own expenses, which shows up in the numbers you're already looking at. If you buy a REIT index fund or ETF instead, you pay an expense ratio, and broad REIT index funds tend to run somewhere in the range of roughly 0.07 to 0.5 percent a year depending on the fund. That's the number to compare, and it's disclosed in the fund's own documents.

The fee that will bite you is the one you brought up sideways. Non-traded REITs, which are sold privately rather than on an exchange, often carry much higher costs and sales charges and you can't sell them whenever you like. Those are a different product wearing the same name. If it doesn't have a ticker you can look up and trade during market hours, it isn't the thing being described in this room.

Since you mentioned income: REIT dividends are mostly taxed as ordinary income rather than at the lower qualified-dividend rate, which is why a lot of people hold them inside a retirement account. Confirm your own situation with a tax professional.

nicole_adeyemi · Answer

One share is right, but think about what one share of exposure actually buys. Two hundred dollars of a data center REIT isn't diversification, it's a bet on one management team. The fund route costs a tenth of a percent and gets a hundred names instead.

kevin_lombard · Answer

I read all of this twice and the part I didn't understand before is that the expense ratio only exists if you buy a fund. So an individual REIT has no annual fee at all to me as a shareholder?

dmitri_248 · Answer

@kevin_lombard correct, no fee charged directly to the shareholder. The company's costs come out before the dividend is calculated, so investors are paying for management, it just isn't itemized on the statement. To see it, compare the general and administrative line in the annual report against revenue.

karen_whitfield · Answer

@angela_burke the thing that took me longest to accept is that liquidity cuts both ways. You can sell in a second, which means you can also panic in a second. My land doesn't let me do that and I've come to see it as a feature.

renee_dubois · Answer

Compare the dividend to what a small rental actually nets after vacancy, turnover and the roof. Across most rental units the gross number and the net number live in different countries. A four to six percent yield with nobody calling at 11pm is not a bad trade.

omar_haddad · Answer

Seconding cairn. Scope creep alone has eaten more than any expense ratio ever will.

ryanmck27 · Answer

On the license question specifically, you need one to sell real estate or securities to other people, not to buy shares for yourself. Different thing entirely, and it varies by state which activities trigger licensing anyway.

diane_kowalski · Answer

Do you want the income now or the growth? That changes which sectors you'd look at, and it's a different question than how much to start with.

sonia_alvarez · Answer

Watch out for mortgage REITs if you are yield shopping. They lend rather than own, and some of them post yields near double digits, which looks like a bargain until you notice the share price trend over five years.

jessreyes12 · Answer

Asking the embarrassing one: if I buy today do I get the dividend this quarter, or is there a date I have to own it by? I've never been clear on that and I didn't want to ask in front of anyone.

What does it actually take to start investing in public REITs with idle business cash

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