A Century 21 Real Estate LLC 'For Sale' sign hangs in front of a property in the Park Slope neighborhood of the Brooklyn borough of New York © Craig Warga, Bloomberg via Getty Images

First, let me tell you a small secret. I expected to write this article in no time flat, highlighting an international real estate investment trust (REIT) that I've owned for many years. I was wrong.

Although that fund is included, there are several other excellent REIT options you need to understand. I'll expose you to the best and cheapest U.S. and international real estate investing options -- and I'm not talking about flying over to Europe or Asia with checkbook in hand.

I'm a professional investment portfolio manager for a privately held real estate holding company. In addition to a real estate portfolio, we hold financial assets. I've been around real estate all my life, as my parents owned a real estate company since the middle of the last century.

Personally, I've owned many investment properties. But managing individual real estate is fraught with aggravation. It's such a pain in the neck, that apart from our own residence, and in spite of the potential financial gains, I do not own any individual real estate outright.

One of the major tenets of investing is diversification, and real estate can be an excellent way to diversify your portfolio. Diversification helps smooth out volatility and reduce risk. The less correlated an asset class is with another, the greater benefit there is from adding it to your investment portfolio.

If you own your own home, you already have substantial exposure to your local real estate market, but U.S. commercial and international housing investments can offer further diversification. And if you're not a homeowner, it makes sense to allocate a portion of your portfolio to this large sector of the economy.

In either case, there is a way to invest in real estate -- and benefit from the cash flow that comes from renting out that property -- without the aggravation of managing tenants and fixing broken pipes in the middle of the night.

3 easy ways to invest in real estate

As with any investment -- stocks, bonds and buying and selling apartment buildings -- there is a risk that the value of your investment will go up and down. That said, over the long term, real estate values have appreciated.

If you've ever invested before, you understand that mutual funds and exchange-traded funds offer a cost effective method to participate in the growth of both U.S. and international businesses. Plop down your cash in a diversified stock-index mutual fund such as Schwab Total Stock Market Index Fund (SWTSX) and voila, your money is pegged to the fortunes of the companies included in the fund. The same strategy holds for ETFs, which are simply mutual funds that trade during the day on financial stock exchanges.

For investors new to real estate investment trust investing, here's a primer from Investopedia: "A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate."

If you'd like a bit more exposure to real estate in your investment portfolio, then here are three real estate funds to consider.

For exposure to the entire U.S. real estate market, Vanguard REIT Index ETF (VNQ) is a great alternative. For full disclosure, I have owned this ETF in the past and may currently hold shares as well.

What's so great about Vanguard REIT Index ETF? In one fund, the investor accesses a range of property types including commercial malls, hotels and apartments. The fund holds shares in more than 120 different real estate companies. If you're looking for income, REITs are required by law to pay out all earnings, thus it sports a juicy 4.14 percent yield. This fund also has the lowest expense ratio in its category.

What is the down side? The REIT is a bit highly valued according to its lofty 38 price-to-earnings (P/E) ratio. And when interest rates rise, as is likely in the future, REITs will suffer as they will need to direct more cash flow to debt repayment than dividends.

The Vanguard Global ex-U.S. Real Estate ETF (VNQI) fills out a real estate portfolio with low-cost international real estate from 35 countries. A further advantage to this international REIT is that it is the only fund to include emerging-market real estate. Since U.S. real estate companies make up less than 50 percent of total real estate securities, it makes sense to allocate funds to international real estate as well.

What else does Vanguard Global ex-U.S. Real Estate ETF have going for it? It is less correlated with U.S. real estate, thus it offers additional diversification benefits. The fund has the lowest expense ratio among its peers at 0.32 percent, a whopping 76 percent lower than its peers. Add a 3.44 percent yield and there are some compelling reasons to own international real estate.

No investment is without a downside. International real estate is more volatile than U.S. REITs. As China struggles, international real estate could feel a pinch.

For the easiest approach, SPDR Dow Jones Global Real Estate ETF (RWO) covers the entire real estate world. This is a one-stop shop for both U.S. and international REIT exposure. The fund's holdings are evenly split between the U.S. and abroad.

The ETF offers a 3.77 percent yield as of February 2014. This is a great dividend, but remember that if the price declines on this or any dividend paying asset, the total return will also fall.

With an annual expense ratio of 0.50 percent, investors could access similar real estate exposure at a lower cost by purchasing using a combination of lower cost U.S. and international REITS.

So, are REITs a good holding for your investment portfolio? The answer is a resounding maybe. Understand your own risk tolerance and realize that in the current low interest rate environment, these investments may decline in value if interest rates spike upward.

On the flip side, a high-yield investment may be desirable for your personal portfolio. And over the long term, owning real estate through REITs is a good way to diversify your portfolio without those pesky middle of the night phone calls from unhappy tenants.

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