The housing market is red-hot right now! So what were you thinking? Three bedroom? Four bedroom? I think that might be a little bit above my budget. Oh, okay, so what were you thinking? I'd love to keep it under a hundred. $100,000? Okay, I'll see what I can do. Oh no, I meant a hundred dollars.

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Wait, you're hoping to get into real-estate investment for a hundred dollars? That's ridiculous!

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Or is it?

[whimsical music]

(Describer) In an animation, a piggy bank walks on top of dollar bills. A woman and man each appear on a penny. Above them, title: Two Cents.

[coins jangling]

♪

Are you itching to get into the real-estate game, but lack the tens of thousands needed for a basic down payment? Or maybe you hate the idea of dragging yourself to open houses, comparing different backsplash treatments. Well, there's a way to own real estate without investing in individual properties: buying shares of a Real Estate Investment Trust, or REIT for short. Let us give you a tour!

(host 2) A REIT is a company that owns and, most of the time, operates income-producing real estate. They are a fairly new fixture in the investment world. The very first REITs were created in the U.S. in 1960 by Congress. They were designed as a way for everyday people to own a piece of a large real-estate investment portfolio. Since then, they've exploded in popularity with publicly available REITs in 35 countries, valued at over $1 trillion! And it's easy to see why. REITs are historically one of the best-performing asset classes. Between 1990 and 2010, the primary equity REIT Index grew at 9.9% per year, second only to mid-cap stocks. Also, here in America, REITs don't have to pay corporate income tax as long as 75% or more of the fund's assets are invested in real estate, which means that the business overall has a lot more wiggle room cash-flow wise. But the biggest draw for investors is the income generation.

(host 1) By law, REITs must pay at least 90% of taxable income to investors in the form of dividends. And they're nothing to sniff at. The average equity REIT-- one that buys properties-- pays a 5% annual dividend. The average mortgage REIT-- which owns mortgage-backed securities-- pays a 10% dividend! Compare that to the average S&P 500 stock, which pays 1.9%, and you can start to understand the curb appeal.

(host 2) While REITs are required to pay 90% of taxable income out in dividends, most REITs actually pay out more than 100% of income out to shareholders. But that's not as exciting as you might think. A hefty 10% pay-out isn't as attractive if your share value falls by 15%. That's why it's important to look at the total return. You can calculate your total return by combining the dividend returns along with the share price movement.

(host 1) When you think about it, these two levers are very much like owning a physical investment property. On one hand, you are bringing in income from the rent you charge your tenants. Then there's the market value of the home itself that should hopefully be going up in value over time. So even if you're not making a ton of profit through the rent after paying a mortgage, taxes, and upkeep, you could be experiencing a return through the appreciation of the property. Or it could work vice-versa. And like property, REITs come in a lot of different styles. For example, retail REITs invest in shopping malls and retail outlets; residential REITs contain apartment complexes and manufactured housing; and office REITs have--you guessed it-- office-building complexes. They can also focus on specific locations. Maybe you're interested in Manhattan real estate, or India's first REIT that just debuted in March 2019. There are plenty of databases out there that can help you narrow your search by focus, region, historical returns, and more.

(host 2) The final consideration is whether to go public or private. Shares in private REITs are offered exclusively through financial advisors and brokers, and they can offer enticingly high dividends or niche specialties like resorts, senior living centers, or timber farms. But make sure you put on a hard hat when checking them out. Private REITs can pay extremely high commissions to the brokers that sell them-- sometimes up to 12% of your investment. They aren't required to disclose conflicts of interest, and it's difficult to find performance data on private REITs as a whole. And they aren't very liquid, so getting your money back quickly can be difficult. And they're usually for accredited investors only, meaning you have to have $1 million to invest or have made over $200,000 for the last two years. If that doesn't sound like you, buying a publicly-traded REIT is as easy as buying a share of stock. You can log into an online brokerage account and just look up the ticker. And if you can't decide on which REIT to pick, there are even ETFs that own stock in different REIT companies-- kind of a sampler platter of real-estate holdings. You're saying I can buy hundreds of different pieces of real estate online without comparing square footage or worrying about old fixtures or getting calls from angry tenants in the middle of the night? Yep. But there's something special about owning your own property, taking care of it, living in it. Sure, but if you live in a city where property values are inflated, or you don't plan to stay in one place for very long, REITs could be a way to dip your toe in the real-estate market for as little as a $100.

(host) And that's our Two Cents!