Investing in Exchange Traded Funds

3 Replies

Is investing in an exchange-traded fund a smart way to invest in real estate? What are the pros cons?

@Rhonda Moore some people love investing in the stock market. Others feel that they don't have enough control of their investments in the stock market. My personal opinion is that there are both good and bad parts of investing in the stock market, and I do invest in ETFs as well as in actual real estate. 

If looking for an ETF to buy, take note of things such as the expense ratio, if the fund is actively or passively managed, the funds performance over the last 1, 5, 10 years and longer, who the manager of the fund is and how long they have been the manager, how much turnover there is in shares, how long the ETF has existed, etc. Also in terms of buying ETFs that invest in REITS, dividends play a big role on the return, so look at that as well.

Remember that ETFs generally invest in a large number of businesses in the same field, so a real estate ETF may have one company that operates trailer parks, while another is running assisted living facilities, and yet another that builds strip malls. Some components of the ETF could be doing great, while others are struggling.

There are several ways to invest in Real Estate via the stock market. I invest in Real Estate Investment Trust's (REITs). For a company to get the tax advantages of being a REIT they must payout 90% of their profits as dividends. There are many REITs out there that yield over 10% a year (I am long on NYMT and CIM). It is a way to invest in real estate within a traditional 401k and build up your money by reinvesting the dividends. I think that pales in comparison to the potential return on investments one can get through the methods you can learn throughout Biggerpockets.

   Using NYMT as an example, it currently is trading for ~$8.05 a share and pays a $.27 per share quarterly dividend.  If you invested $25k you would get around 3100 shares.  You would earn ~$838 a quarter and ~$3,353 a year in dividends.  Important note, you do not get the tax benefits of Real Estate ownership but it is not a bad way to invest.


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