Rental Property vs. REZ Residential Index ETF

Many people see owning a rental property as a ticket to prosperity. But wouldn’t it be nice if you could simply own an interest in a rental property, but not have any of the accompanying hassles? I’m far from an expert in this field, but let’s take a look at an REIT that invest in residential real estate.

What is an REIT?
REIT stands for Real Estate Investment Trust. From the National Association of REITs website:

A REIT is a company that owns, and in most cases, operates income-producing real estate such as apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. The shares of many REITs are freely traded, usually on a major stock exchange.

To qualify as a REIT, a company must distribute at least 90 percent of its taxable income to its shareholders annually. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. As a result, most REITs remit at least 100 percent of their taxable income to their shareholders and therefore owe no corporate tax.

Since all the REIT income usually “passes through” straight to the shareholders, you are getting relatively direct exposure to real estate. You’re not investing in raw materials, a homebuilder, or some other derivative.

REZ Residential ETF
The iShares FTSE NAREIT Residential Plus Capped Index Fund (ticker REZ) is an ETF that tracks the FTSE NAREIT All Residential Capped Index. Here is the breakdown by industry breakdown and (read more)

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