I'm an online writer, handyman, traveler and former Caribbean live-aboard sailor who now lives in Austin, TX.
My Tiny Real Estate Empire
For several years now I've been earning a small amount of money each month from online articles that I've written for a variety of sites, including where you're reading this one now. For many years I looked at this income as disposable, fun money if you will, to spend on some electronic toy or gadget perhaps. Now I'm taking a different approach, one that I wished that I'd done sooner, and investing it all in real estate. While I'm making closer to three figures rather than six from my online writing, it's still enough for me to invest each month in multiple real estate properties. How is this possible you may ask?
REIT's or Real Estate Investment Trusts, are companies that invest shareholders money directly into real estate and which are required by law to pay shareholders 90% of taxable income from those properties each year.
There are many different kinds of REIT's, investing in all types of property, from doctors offices and hospitals to apartment complexes and shopping malls. Most of them provide investors with income directly from the collection of rent from tenants. Since some tenants are more likely to make regular rental payments, even during tough times such as the present one, it pays to find those REIT's that offer reliable, regular returns and without wild swings in their share price.
There are REIT's that own property where multiple cell phone towers are located, such as American Tower Corporation. These are typically stable and provide reliable income, as do ones that own medical office property and hospitals. Yet rather than invest in any one of these, I choose to invest my modest earnings in a fund that owns many of these individual companies. An ETF, or Exchange Traded Fund, is a fund that sells shares that are traded like stock and which may themselves hold shares of several dozen REIT's in different market sectors.
By purchasing these exchange traded funds, or REIT ETF's, you're able to diversify your investment thoughout a number of real estate investment trust companies, and theoretically minimize possible losses if any one company or market sector were to have a downturn.
The thing that's appealing to many investors about REIT's and REIT exchange traded funds, is that the investment is based on actual physical property, which should continue to appreciate over time. In addition to capital appreciation you can also profit from dividends, which are derived from the income collected from those properties. Dividends are often paid quarterly and rather than spending those payments I plan to save them until I have enough to buy more shares.
REIT ETF's That I LIke
If you're interested in this savings approach it's not hard to get started. There are many REIT's and REIT ETF's out there to choose from. You may decide to put all of your eggs in one basket and invest in one REIT company, such as American Tower, (symbol AMT), or go with a REIT ETF such as the Vanguard Real Estate ETF (symbol VNQ) which itself contains shares of American Tower, along with 190 other real estate investment trust stocks.
For my own peace of mind I prefer to diversify, so I chose VNQ, the Vanguard Real Estate ETF. Their holdings are spread out over a number of real estate sectors, and include everything from residential real estate to commercial properties, long term care facilities and even computer server farms and warehouses.
There are risks to any investment and just like stocks and bonds, one must be comfortable with some level of risk before investing in either REIT's or REIT ETF's. During the financial crisis of 2009, VNQ's share price dropped by half in one day. (Source: Yahoo Finance). Despite that, it came back and as of 12/10/2020, VNQ has delivered an average annual return of 8.86% over the past ten years. During the Covid-19 crisis, shares have fallen by -7.20%, so investing in these types of funds are not without some risk. What is most appealing to me about the Vanguard fund, VNQ, is that it is currently yielding 3.52% in annual income with a net Annual Report Expense Ratio of only 0.12%. As fund expense ratios go, that's not bad. The smaller a funds fees are, the more money you keep.
How does the income you receive annually from owning a REIT or REIT ETF compare to the cash flow you might get from actual physical real estate? It's difficult to compare funds to individual properties since there are so many variables, but let's take for example the cost of a very modest home where I live, in Austin, Texas and what it might rent for. A $350,000 home may rent for $1,700 to $2,500 at present. If you had invested the same in VNQ, the Vanguard Real Estate ETF, last year you would have received dividends in the amount of $12,320, or $1,026 per month.
There are taxes to be paid on these dividends, just like rental income, yet property taxes on the properties generating REIT income have already been paid by the REIT's. On that home in Austin, property taxes would have amounted to around $8,500. This is an example of just one fund, and returns vary widely among REIT's, but it shows that you can earn actual real estate income without having to worry about the hassle of dealing with tenants, upkeep, etc., that you would normally have if you owned the property outright.
If you're considering investing in REIT ETF's, I don't suggest that you put all of your money into any one fund and diversify into other funds, such as bond funds to minimize your overall risk. Portfolio diversification is a topic for another time however and one worth researching. For my modest article income I'm going with the one fund for now to keep it simple.
I plan to eventually add an international REIT ETF to my portfolio, in order to give me some more diversification and a hedge against a possible downturn in the US economy.
Where Do You Go To Invest In REIT ETF's?
If investing in real estate through ETF's is something that you're interested in, I suggest that you open an online trading account with your bank or other financial institution and start off with buying a few shares. VNQ for example, is currently trading at $84.02 per share and many banks, including Wells Fargo, now let you buy shares commission-free. FirstTrade and Charles Schwab also charge no brokerage fees. In my case, I prefer to buy shares through my Roth IRA account at my bank. Roth IRA's are a type of savings plan that's available to anyone who is earning income, or who has a spouse that earns income.
The nice thing about them is that once you invest money in them, whether it be shares of a stock or ETF, or even a simple money market account, you won't ever pay tax on the the dividends, interest or growth of those investments as long as you don't take it out before retirement age. This is probably one of the most generous "freebies" that the US government gives working adults, and it allows you to squirrel away anywhere from $5,000 to $7,000, depending on your age, each year, tax free for life. It's as if you only pay for the seed for a money tree, and then never pay tax on the fruit that it bears from then on.
Investing a small amount of online writing income isn't going to make me rich, yet every bit helps me have a more secure retirement. I'm also supplementing my retirement fund with money from my other side jobs.
If we were to look only at a modest amount of income invested regularly, say $100 per month, over a period of 20 years, it would grow to a whopping $45,664.58 in that time, assuming that you earned 6% annually. The earlier you start the more money you can have at retirement age.
If you're making a small amount of online income and would like to do something fun with it, as well as something that's good for your future, then consider investing in something such as a REIT ETF. When invested wisely and regularly, even a small amount of money can make a big difference to your future net worth.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2020 Nolen Hart
Peggy Woods from Houston, Texas on December 15, 2020:
Thanks for sharing this information with us about how you are investing your earnings from your writing sites. It sounds as though you have a good thing going!