This Is Why You Should Consider Investing in REITS

The reason why some people like investing in REITs for dividends is that REITs are required to follow the 90% rule, which says that the REIT is required to pay out 90% of their taxable profits to their shareholders, people like you in the form of dividends. And that's why some people get attracted to REITs because it's kind of like investing in real estate without actually investing in the real estate. I'm going to go over a few examples, but I'm going to just give you my opinion. I'm personally not a huge fan of REITs because I also invest in real estate. I would much rather own the real estate because when I own the real estate, it's something that I can control. I get the tax benefits and it's mine. But that's just me. Other people love REITs. So let me show you what that looks like. For example, VNQ is an ETF created by Vanguard. This invests in office building, hotels, and other real property. At the time of recording this video, has a 3.6% annual dividend. SCHH is a fund created by Schwab. This is an ETF that invests in a broad range of other REITs. So this fund is investing in a broad range of real estate investment companies. This is currently paying out a 3% annual dividend. And then we have XLRE, which is a fund that invests in development companies, management companies, and other broad real estate investment companies as well, which is currently paying out a 3.2% yield. So let's do some math. If you wanted the $50,000 today, you would have to invest $1.38 million into VNQ, $1.67 million into SCHH, and $1.56 million into XLRE. Again, the goal isn't to have the million dollars today. It's to slowly work your way there because if you know this is your goal, now you can start attacking. You put some money aside to invest every single month. As you get a raise, you invest more money. As you start to get paid the dividend income, you reinvest that money. And the nice thing is if you invest your money into a good investment, the value of investment goes up and the amount of money you get paid in dividends goes up as well. But I got to give you one piece of warning. Never, never, never make your investment decision based solely off of the dividend yield. See, the mistake a lot of people make is when they get into this idea of dividend investing, I did this too, is you start looking for the highest dividend yields. And you say, okay, let me find the company or the fund that's paying out the highest dividend possible. But sometimes that can be misleading because the company might show you a very high yield, but the company could also be on the verge of bankruptcy because sometimes a company's stock will be falling because it's a really bad company, but they haven't stopped the dividend yet. So if a company's paying out a 20% dividend, it's going to look very good. But if the stock price just fell 80%, you can start to see the problem. Make your investment decision based off of the underlying fundamentals of the company. The goal is to invest in a good company, not just a good dividend, a good company. And then this company should be healthy, should be profitable, and should be growing. If you can invest in a good company, well, now that's where you start to see all the benefits because that's where you can see the growth and the value of your investment. And you can also see the growth in the value of your dividend. So not only are you seeing your investment go up, but you're also getting paid more money every single year because this company is good and they're growing their profits. That's why you want to go beyond just looking at the dividend yield that a company is paying. And just to be fully transparent, let me tell you the cons of investing in dividends. There's a couple of cons. Con number one is when you're investing in a dividend-paying company, that means that you're probably not going to see the huge explosion in stock price. Because when a company is paying out their dividends, that means, again, they're taking their extra cash and they're just giving it away. They're not taking the extra cash and investing it for growth. They are giving it away to their shareholders, which means you get some of the money today, but you might not see the huge explosion in the stock price because they're not as aggressively investing in their growth as they potentially could. The other con that you want to think about has to do with taxes. Now, as an attorney who's not your attorney, what I can tell you is that when you get paid a dividend, you generally pay a lower tax rate on the dividend income, but you still have to pay taxes on the dividend income. Even if you take all the dividends that you get and reinvest them, you still have to pay taxes on those dividends, even though they never actually hit your bank account. Those dividends are being automatically reinvested, but you still have to allocate for that income on your tax returns. So something you want to think about and keep in mind. But the nice thing about dividends is they allow you to take advantage of compound interest essentially automatically. You can follow what's called a DRIP, Dividend Reinvestment Plan, which now allows you to invest more money. You could do it every week, every two weeks, every month. You keep investing more money. And then every time you buy more of this fund or this dividend paying machine, you take the money that you're making and you just automatically reinvest it. That way the machine keeps getting bigger and keeps printing out more money for you every time you invest more and every time you get paid that dividend. So let's show you now the five steps very quickly and how you actually put this into action. Step number one is research. What do you want to invest in? Is there a stock that you want to invest in, or do you want to invest in a fund? Know your strategy, figure out what it is that you want to invest in. And number two, automate money being invested. Maybe you follow something like 75, 15, 10. Maybe you're more aggressive with your investments. Maybe you're less aggressive depending on where you are, but you need to come up with a system so you're always putting money aside for investments and now you just keep, every time you get paid, throwing money into these machines that are paying you with dividends. You keep putting your money into investments and you want it to be automated because if it's not automated, you can forget. You don't want to forget. Number three, as you get paid with those dividends, you want to reinvest those dividends. DRIP stands for the Dividend Reinvestment Plan. Pretty much every brokerage will allow you for this. That way now when you get paid that dividend, you keep reinvesting that dividend. That way now not only are you working to grow how much dividends you're generating, your dividends are also making you more dividends. Number four, allocate money for taxes because as you generate the dividend income, you've got to pay taxes on that income. So remember that. And then number five is a decade of sacrifice. This is a slow game. The first few years, it is an incredibly slow game because you see nothing. Year one, year two, year three, it's essentially you see no dividends. But then year four, you start to see a little bit. Year five, a little bit more. Year six, a little bit more. And now you're starting to see the impact of this. By year seven, now you're starting to see the real power of this. By year eight, now you start to have a significant stream of income. By year nine, you're starting to see the potential of what might be coming. And by year 10, you will recognize how far you've come. It is not a get-rich-quick game, but it is a get-rich-actually game if you're willing to stick with it. And that's why I say a decade of sacrifice is what you need where you're willing to spend less and earn more because that time is going to go. And if you stick with something like this, if you are interested in cash flow, that's what I'm interested in, that's why I'm making this video. Well, after a decade, you can have a completely different financial outlook with a whole new stream of dividend income if you're willing to go through the steps, to go through the process, to go through the hard work, to keep investing your money, to generate a whole new piece of income. If you enjoyed this clip and you want to continue your financial education journey, I have another video that I think you'll love. All you got to do is click that button right over there. 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