Are REIT worth it and is it a good option to generate passive income for a while?
One way is to think of a REIT as a fully managed portfolio of real estate investments. Risks and returns are averaged across the real estate portfolio and managed by experts, possibly industry leading experts.  REITs have a well documented track record you can research - most individuals do not. Many individuals have learned a hard lesson or two while attempting to generate passive income with real estate. Conversely, some people derive a great deal of satisfaction from owning real estate and have a true passion to do so.  Plus, if you are expecting interest rates to raise and/or rate of inflation to increase in the next 30 years, you may benefit from the financing aspects of the investment as well.  There are some regions/ opportunities that seem to do better than the average REIT a majority of the time, but may not be desirable to you or fit into your budget for various reasons. I'm not sure what your level of experience, knowledge or financial situation , but for everyone considering, there are many additional things to know about investment property compared to a primary residence.  A good place to start with REITs is the prospectus of one that interests you.  Research their holdings, create a model, or otherwise make a connection with the REIT before clicking buy. "In financial markets, the gains you can expect to make (whether in the form of dividends or capital gains) correspond to the risks you are bearing.  There are a variety of REITs but you can expect to make only as much money in them as you bear risk (meaning you can also lose a lot of money in the ones that earn a lot).  In that sense they are just like other financial assets like stocks. If you are generically trying to increase your wealth by bearing risk, you can get a better risk/reward ratio in a fully diversified portfolio including stocks and bonds as well and REITs.  ""Passive income"" means making money by bearing risk.  REITs alone, without diversifying into other financial assets, do a poor job of generating income for the amount of risk you bear. So why are REITs not very comparable to buying a house and renting it out?  Because in the latter case you are being paid not only for bearing the risk of the house depreciating but also you are being compensated for the work you do as a landlord.  Moreover, because the house doesn't trade in a liquid market like REITs do, it is possible to actually get a good deal, as opposed to the fair deal you will get on a REIT. TL;DR: The ""passive income"" generated by REIT investment is more similar to generic equity/bond investment than it is to an investment in a physical home that you rent out.  If what you want is to make money without doing anything besides bear risk, you should invest in a fully diversified portfolio of financial assets (equity and bonds being the primary constituents but REITs potentially being a part as well)." There are tax strategies you could take advantage of if you own the property. Find local real estate investors that like 'buy and hold'. Additional strategy is to buy a property and sell it with owner financing (you use a Residential Mortgage Loan Officer to facilitate.) What is great is you can get a great % real return on your money without being a landlord. "Other individuals answered how owning an REIT compares to an individual real estate investment, but did not answer your second question as readily, ""are REITs a good option to generate passive income for awhile?"". The ""awhile"" part is quite important in answering this question. If your intentions are to invest for a relatively short time period (say, 7 years or less), it may be especially advantageous to invest in a REIT. The foremost advantage comes from significantly lower transaction fees (stock/ETF trades are practically/potentially free today) compared to purchasing real estate, which involves inspection+titling fees/taxes/broker fees, which in a round-trip transaction (purchase and sale) would come to ~10%. The secondary advantage to owning a REIT is they are much more liquid than a property. If you wanted to sell your investment at a given point in time, you can easily log into your brokerage and execute your transaction, while liquidating an investment property will take time on market/potentially tossing tenants/fixing up place, etc. On the other hand, illiquid investments have generally yielded higher historical returns according to past research."
The long term view you are referring to would be over 30 to 40 years (i.e. your working life). Yes in general you should be going for higher growth options when you are young. As you approach retirement you may change to a more balanced or capital guaranteed option. As the higher growth options will have a larger proportion of funds invested into higher growth assets like shares and property, they will be affected by market movements in these asset classes. So when there is a market crash like with the GFC in 2007/2008 and share prices drop by 40% to 50%, then this will have an effect on your superannuation returns for that year. I would say that if your fund was invested mainly in the Australian stock market over the last 7 years your returns would still be lower than what they were in mid-2007, due to the stock market falls in late 2007 and early 2008. This would mean that for the 7 year time frame your returns would be lower than a balanced or capital guaranteed fund where a majority of funds are invested in bonds and other fixed interest products. However, I would say that for the 5 and possibly the 10 year time frames the returns of the high growth options should have outperformed the balanced and capital guaranteed options. See examples below: First State Super  AMP Super  Both of these examples show that over a 5 year period or less the more aggressive or high growth options performed better than the more conservative options, and over the 7 year period for First State Super the high growth option performed similar to the more conservative option. Maybe you have been looking at funds with higher fees so in good times when the fund performs well the returns are reduced by excessive fees and when the fund performs badly in not so good time the performance is even worse as the fees are still excessive. Maybe look at industry type funds or retail funds that charge much smaller fees. Also, if a fund has relatively low returns during a period when the market is booming, maybe this is not a good fund to choose. Conversely, it the fund doesn't perform too badly when the market has just crashed, may be it is worth further investigating. You should always try to compare the performance to the market in general and other similar funds. Remember, super should be looked at over a 30 to 40 year time frame, and it is a good idea to get interested in how your fund is performing from an early age, instead of worrying about it only a few years before retirement. "Short answer: Yes. For Federal income tax purposes, you are taxed on your total income, adding up positives and negatives. If business A made, say, $100,000 while business B lost $20,000, then your total income is $80,000, and that's what you'll be taxed on. As @littleadv says, of course any business losses you claim must qualify as business losses under IRS rules. And yes, there are special rules about losses that the IRS considers ""passive"". If you have wage income in addition to business income, business losses don't offset wage income for social security and medicare tax purposes. You can't get a refund of the social security tax deducted from your paycheck. I don't know if this is relevant to you, but: If you have businesses in different states, each is taxed by that state. For example I have two tiny side businesses, one in Michigan and one in Ohio. Last year the Michigan business made money while the Ohio business lost money. So my federal income was Michigan minus Ohio. My Ohio income was negative so I owed no Ohio income tax. But I couldn't subtract my Ohio losses from my Michigan income for Michigan income tax purposes. Thus, having, say, $10,000 income in Michigan and $10,000 in Ohio would result in lower taxes than $30,000 income in Michigan and a $10,000 loss in Ohio, even though the total income in both cases is the same. And this would be true even if the tax rates in both states were identical." "Because it ignores several important facts, namely:  A) The base value from infrastructure is derived on a per-capita basis. It is a ""fixed cost"" as opposed to a variable one. In other words, roads are just as useful to me as they are to you regardless of my net worth. A tank, a missile, a police officer protects me the same as it does anyone else.  B) As a percentage of income, infrastructure is far more valuable to low-income individuals than high-income individuals. A simple example: if I have $5M in net worth, I can invest it in the stock market and stay home. If you don't have that option, you need to go to work and that will likely require roads. I won't be taking unemployment benefits, but you are far more likely to. And so on.  C) The activities of business owners generate massive tax revenues. These far outweigh their personal utility from infrastructure.  D) Society captures the majority of individual commercial efforts (estimates vary, but typically 85%). In other words, if I generate $10.00 of value as an entrepreneur, I will realistically be able to capture only $1.50 of that.  The ""infrastructure"" argument has been shamelessly used to fool low and middle income voters. The truth is that infrastructure benefits these voters (and the government) far more than it does wealthy individuals." One idea that I read among some of the many, many personal finance blogs out there is to create a niche website with good content and generate some ad revenue. The example the author gave was a website he'd made with some lessons to learn basic Spanish. Something as specific as that has a reasonable chance of becoming popular even if you never post new content (since you were looking for passive). The ad income won't be great, but it's likely to stay > 0 for a significant while. Hmm, if your financially savvy enough to have saved up half a million dollars, I'd think you would be savvy enough to spend it wisely. :-) I think I'd spend the cash before running down stocks and bonds, as cash almost surely has a lower rate of return.  I'd look into what rate of return you're getting on the rental property versus what you're getting from other investments. If the rental property has a lower return, I'd sell that before selling off stocks. (I own a rental property on which I am losing money every month. I'm still paying a mortgage on it, but even without that, the ROI would be about 4% under current market conditions.) Besides that, your plan looks good to me. Might need to add, 8. Beg on the streets, and 9. Burglary. You don't start out buying a shopping mall, you have to work up to it.  You can start with any amount and work up to a larger amount. For me, I saved 30% of my salary(net), investing in stocks for 8 years.  It was tough to live on less, but I had a goal to buy passive income.  I put down this money to buy 3 houses, putting 35% down and maintaining enough cash to make 5 years of payments.  I rented out the houses making a cap of 15%.  The cap is the net payment per year / cost of the property, where the net accounts for taxes and repairs.  I did not spend any of the profits, but I did start saving less salary.  After 5 years of appreciation, mortgage payments and rental profit, I sold one house to get a loan for a convenience store.  Buildings go on the market all the time, it takes 14 years to directly recoup an investment at a 7% cap, which is the average for a commercial property sale.  Many people cash out for this reason, it's slow, but steady growth, though the earnings on property appreciation is a nice bonus.  Owning real estate is a long term game, after a long time of earning, you can reinvest, but it comes with the risk of bad or no tenants. You can start both slower and smaller, just make sure you're picking up assets, not liabilities.  Like investing in cars is generally bad unless you are sure it will appreciate. The Motley Fool article is correct that if you earn UBTI over $1000, you will need to pay the tax, even if held in an IRA.   C-corps won't generate UBTI, so you're fine with those.  For non-C-corps, the most common are REITs, MLPs, and BDCs.   REITs  These typically invest in either real estate property or mortgages.  The ones that invest in mortgages are sometimes notated: mREITs, and can occasionally generate UBTI.  Tip: Don't let this stop you from investing in REITs in your IRA.  REITs can be a great source of income and are best held in an IRA since the income will be tax free vs. your ordinary income tax bracket if held in a taxable account.  Some examples of mREITs would be NLY, CIM, AGNC.  Some property REITs would be: O, SNR, OHI, EQR. https://seekingalpha.com/article/1257351-tax-bomb-mortgage-reits-triggering-ubit MLPs Master Limited Partnerships are also pass-through entities, like REITs, but have the additional complication that most issue K-1 forms at tax time.  K-1s can be very complex when the MLP owns assets across state boundaries, which is why I actually PREFER to hold MLPs in my IRA (against the advice of M. Fool) since I won't have to deal with the tax complications of filing the K-1, just as long as my MLPs don't generate over $1000 of UBTI. https://seekingalpha.com/article/4057891-mlps-kminus-1s-ubti-oh BDCs Business Development Companies like REITs and MLPs are also pass-through entities in that the income they give you will be taxed at your ordinary income bracket if held in a taxable account.  Examples of BDCs include: MAIN, MCC, ARCC.  You'd need to consult their 10-K to determine if there is a risk of UBTI. Tip:  MLPs, BDCs, and especially REITs can all be very valuable sources of income and from my experience, UBTI is rare so don't let that scare you away if you otherwise like the investment. "For starting with zero knowledge you certainly did a great job on research as you hit on most of the important points with your question.  It seems like you have already saved up around six months of expenses in savings so it is a great time to look into investing. The hardest part of your question is actually one of the most important details.  Investing in a way that minimizes your taxes is generally more important, in the end, than what assets you actually invest in (as long as you invest even semi-reasonably).  The problem is that the interaction between your home country's tax system and the U.S. tax system can be complex.  It's probably (likely?) still worth maxing out your 401(k) (IRA, SEP, 529 accounts if you qualify) to avoid taxes, but like this question from an Indian investor it may be worth seeing an investment professional about this.  If you do, see a fee-based professional preferably one familiar with your country.   If tax-advantaged accounts are not a good deal for you or if you max them out, a discount broker is probably a good second option for someone willing to do a bit of research like you. With this money investing in broadly-diversified, low fee, index mutual funds or exchange traded funds is generally recommended.  Among other benefits, diversified funds make sure that if any particular company fails you don't feel too much pain.  The advantages of low fees are fairly obvious and one very good reason why so many people recommend Vanguard on this site.  A common mix for someone your age is mostly stocks (local and international) and some bonds.  Though with how you talk about risk you may prefer more bonds. Some people recommend spicing this up a bit with a small amount of real estate (REITs), sometimes even other assets.  The right portfolio of the above can change a lot given the person.  The above mentioned adviser and/or more research can help here. If, in the future, you start to believe you will go back to your home country soon that may throw much of this advice out the window and you should definitely reevaluate then.  Also, if you are interested in the math/stats behind the above advice ""A Random Walk Down Wall Street"" is a light read and a good place to start.  Investing makes for a very interesting and reasonably profitable math/stats problem."