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College Savings 101

Three Things to Know About: Real Estate Investment Trusts

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This article is part of Virginia529’s “Three Things to Know” Investment Portfolio series, highlighting the more than 20 portfolio choices available to Invest529 customers. The information presented below is an overview of the plan’s investment options and should not be considered advice. Before selecting a portfolio consider factors such as the age of your child and your tolerance for risk.

Saving for college by investing in real estate can be lucrative, but it can also be hard work. For those who would rather take the non-landlord route to real estate investment, real estate investment trusts (REITs) may offer a “low maintenance” alternative.

REITs provide a method for individual investors to earn a share of the income produced through commercial real estate ownership without having to actually purchase, manage or finance commercial real estate. Invest529 currently offers the Real Estate Investment Trust (REIT) Index Portfolio, a passively managed static portfolio that invests mainly in equity REITs.

 

What is a (REIT)?

A REIT is a company that owns and typically operates income-producing real estate and real estate-related assets. REITs are similar to stocks and trade on major market exchanges, or even private exchanges. There are many different types of REITs for individual investors to choose from, with equity REITs tending to be the most common type. Equity REITs are largely responsible for acquiring, managing, developing and selling real estate. These may include office buildings, shopping malls, apartments, hotels and resorts.

 

What is a REIT Index Portfolio?

A REIT index fund is an exchange-traded fund that invests mainly in equity REITs. Instead of being actively managed, these funds are built around an index of publicly traded real estate. The two most common indexes are the MSCI U.S. REIT Index and the Dow Jones U.S. REIT Index. Invest529 invests entirely in the Vanguard Real Estate Index Fund, which uses the MSCI US Investible Market Real Estate 25/50 Index to track domestic equity real estate investments – primarily REITs.

Index funds don’t try to beat the market or earn higher returns compared to market averages. Rather, the REIT index fund invests in several property-owning real estate companies at once. These index funds can help balance the risk in an investment portfolio as market swings can be less volatile across an index compared to the volatility of individual stock. Related: Invest529’s Real Estate Investment Trust Index Portfolio

 

How does an Equity REIT Work?

Most REITs lease space and collect rent on the real estate, and then pay out the income to shareholders in the form of dividends. Once an equity REIT has covered the expenses associated with running a property, the company is required by the IRS to pay out at least 90 percent of its taxable income to shareholders. Since equity REITs are required by the IRS to pay the majority of its taxable income to shareholders, dividend payments for equity REITs tend to be higher than other investments, given that equity REITs are not allowed to retain profits to fuel future growth.

 

Key Takeaways:
  • A REIT is a type of security in which the company owns and generally operates real estate or real estate related assets. They combine the liquidity of stocks with the income and stability of owning real estate.
  • Equity REITs are a good choice for investors who want to invest in commercial real estate without actually having to go out and buy property.
  • It's a good practice to check on your portfolio periodically.

Review Virginia529’s  Real Estate Investment Trust Index Portfolio

 

Low fees, tax advantages and diverse investment options are reasons Invest529 is consistently ranked among the top 529 plans by independent sources. In its latest annual rating (October 2018), investment research provider Morningstar awarded Invest529 a Gold Morningstar Analyst Rating™ for the third consecutive year.

 

The examples above are provided for illustrative purposes only and are not intended to reflect or predict the actual performance of any specific investment.  Virginia529 cannot and will not provide legal, financial, or tax advice, and nothing herein or in any other written materials shall be construed as such.

For more information on Virginia529’s college savings options, visit Virginia529.com or call 1-888-567-0540 to obtain program materials. These include information on Virginia529 programs, investment objectives, risks, charges, expenses and other important information; read and consider them carefully before investing. Virginia529 encourages prospective participants to seek the advice of a professional concerning any financial, tax or legal implications related to opening an account. For residents of states other than Virginia: before investing, you should consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protections from creditors that are only available for investments in that state’s qualified tuition program. ©2019 Virginia College Savings Plan. All Rights Reserved.


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Virginia529 offers free, in-person information sessions at locations across Virginia. These hour-long sessions highlight the program’s three plans, explain the benefits to account owners and give you the chance to get your questions answered. If you don’t live near one of our in-person sessions, Virginia529 offers online webinars where you can learn more from the comfort of your own home.