Real estate is the business of buying, selling, and renting land and buildings. While stocks and bonds are "paper" assets, real estate is a "hard" asset, something you can see and touch. People will always need a place to live, work, and shop, which is why real estate has historically been a great way to build wealth.

Three Ways Teens Can Invest in Property

You don't need to buy a whole house to be a real estate investor. Here are the three most common paths:

1. REITs (Real Estate Investment Trusts): This is the easiest way to start. A REIT is a company that owns a giant collection of properties (like apartment buildings, hotels, or data centers). By buying shares of a REIT on the stock market, you get a slice of the rent those buildings collect.

2. Real Estate ETFs: Just like stock ETFs, these are "baskets" that hold dozens of different REITs. This is the safest way to invest in property because you aren't betting on just one building or one company.

3. Real Estate Crowdfunding: There are apps that allow thousands of people to chip in small amounts of money to fund a single big project, like an apartment complex. Once the building is finished or rented out, the investors split the profit.

Essential Facts for You and Your Parents

Review these four points to understand how real estate differs from other investments:

1. The Power of Dividends

By law, REITs are required to pay out 90% of their taxable income to their shareholders as dividends. This makes real estate one of the best investments if you want to see actual cash hitting your account every month or quarter.

2. Property Diversity

Real estate isn't just houses. When you invest, you can choose specific categories:

• Residential: Houses and apartments.

• Commercial: Office buildings and shopping malls.

• Industrial: Warehouses (like the ones used by Amazon).

• Specialty: Cell phone towers, hospitals, or even forests.

3. Real Estate vs. Inflation

Real estate is often called an "inflation hedge." When prices for things like food and gas go up, rent prices usually go up too. This helps protect the value of your investment when the cost of living increases.

4. High Sensitivity to Interest Rates

This is a key rule: Real estate companies usually borrow a lot of money to buy their buildings. If interest rates go up, it becomes more expensive for them to borrow, which can cause their stock prices to drop. This is why real estate can be more "sensitive" to news from the government than other stocks.

How it Fits in Your Portfolio

Most investors use real estate as a "third pillar." If your stocks are doing poorly, your real estate might be doing well. It provides a different kind of growth and a steady stream of cash that you can use to buy more stocks or bonds.

Pro-Tip: If you already own an S&P 500 Index Fund, you actually already own some real estate! Many of the biggest REITs in the country are included in that index.