The Need to Know About Compound Interest and REITs

Many investors are flocking to real estate investment trusts (REITs) because they’re considered a relatively safe and high yield investment. Some dividends can be 10% or higher and offer the potential for capital appreciation. Approximately 84% of real estate investors indicate that they will make another investment soon, and compound interest can help them achieve their financial goals faster. Here’s what you need to know about compound interest and how it applies to REIT investing.
What is Compounding Interest?
Compounding interest is the concept that your money makes you more money over time when the interest compounds on your original investment and interest earned. Compounding interest creates a snowball effect that can accelerate the value of your investment. For example, if you invest $1,000 at an annual interest rate of 10%, you will have $1,100 at the end of year one. If you leave the interest earned ($100) and the original investment ($1,000) in your account and earn another 10% in year two, you will have $1,210 at the end of year two. Fast forward 30 years, while continuing to earn 10% annually and not making a withdrawal on your account, you will have $17,449.4. Conversely, if you decided to withdraw the $100 interest earned every year for 30 years, you would have only received $3,000 in interest (30 years x $100) and still have just $1,000 in your account. In this scenario, the effect of compounding interest generated more than four times the amount of money compared to making annual withdrawals.
How Can You Use Compounding Interest to Your Advantage?
Compounding interest takes patience but is not difficult to use to your advantage. Most REITs and brokerage platforms offer a dividend reinvestment plan (DRIP). By enrolling in a DRIP, you are reinvesting your dividends back into the REIT or stock that you own. Over time, you will own more shares of the REIT or stock, and the dividend payments will become greater (assuming consistent dividend payments over your investment period). When you redeem your shares in 5, 10, 15, or 30 years, you will see the fruitful effects of compounding interest.
Why Does It Matter?
If you don’t harness the power of compound interest, you may be cutting yourself short of your actual earning potential. Non-accredited and passive real estate investors are already generating a massive amount of wealth using the power of compounding interest by investing in REITs with DRIPs.
If you’re looking to maximize your investments’ value, compound interest can help accelerate your portfolio’s growth over time. To learn more about compound interest, speak with one of the professionals at a commercial real estate investment company online, or better yet, in person, with someone local. Ask them how you can reach your financial goals faster by harnessing the power of compound interest.

 

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What Are REITs and Why Should You Care?

A Quick Real Estate Investment Trust Description
A real estate investment trust is a company that owns, operates, or finances properties. The properties can range from homes to hotels, malls, offices, medical buildings, or any other real estate type.

 

Investing in REITs can be a great way to generate passive income and build wealth through real estate. Perhaps that is why nine out of 10 investors add real estate to their investment portfolio. If you want to diversify where you put your money to grow it steadily over time, you can buy shares of a REIT.

 

Of course, you might be thinking that your portfolio is already diverse, with a mix of stocks and bonds. Why add REITs into the mix? There are several reasons.

 

REITs Can Be Affordable Ways to Get Into Real Estate Investing
Let’s say you want to invest in real estate. That’s a great goal, but it might take a lot of capital to get started and purchase a property substantial enough to generate cash flow. After all, if you are only beginning your real estate investing career, you’re probably going to purchase just one property at a time.

 

Rather than wait until you have enough property to start seeing regular returns, you can use an app for investing in commercial real estate and jump right into the REIT world. No-fuss, no muss, and it’s economical, too.

REITs Can Generate Steady Income Streams
As you may have heard, real estate tends to outperform the stock market over the long-run. A real estate investment trust often provides dividend distributions, that can then be reinvested through dividend reinvestment plans (DRIPs). By reinvesting your dividends back into the REIT, you are purchasing more shares of the REIT, and increasing the potential to be paid more dividends in the future.

 

When it comes time to start reaping the benefits of your investment, you could potentially realize a significant stream of income. And that’s good for your retirement years.

 

The Stock Market Has Less Effect on Public Non-Listed Real Estate Investment Trusts
Are you concerned about stock market volatility when it comes to distributing and managing your investment portfolio? Public non-traded REITs tend to fluctuate in value less than other publicly traded REITs and stocks when the market takes a tumble.

 

Although no investment is entirely immune to market swings, public non-traded REITs are more closely aligned with a pure-play real estate investment and can be less volatile. If your risk profile leans toward taking fewer chances, download one of the best investing apps and look into a public non-listed REIT.

 

Professional Management Teams Oversee the Commercial Real Estate
Let’s say your friend tells you he’s buying up tons of commercial property for sale in the area and wants you to be an investor. Sounds good–in theory. In practice, your arrangement could end up a nightmare, especially if your buddy isn’t a smart money or property manager.

 

Real estate professionals manage REITs. This means that they’ll treat your investment like you would, with care and diligence.

 

The SEC Has Oversight of All Types of REITs
If you choose to invest in a publicly traded or public non-traded REIT, you have the SEC overseeing financials of the REIT. In other words, you don’t have to wonder if the REITs are in compliance. They’re legally bound to follow SEC regulations, or they risk losing their REIT status and could run into legal troubles. This provides you with security that you may not get investing in private equity or a private REIT.

 

Your desire to invest in real estate, even if you can only invest in real estate with $500 or less, makes sense. Over the past 20 years, REITs have proven to be the right fit for investors of all ages, from Generation Z to Baby Boomers. Download a real estate investing app today and have fun exploring the wide world of REITs.

 

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