Though I do a fair amount of reading of the real estate market, I must admit that I don’t keep in touch with domains such as real estate investment trusts. I understand the REITs (as they are called) could be a very useful addition to one’s portfolio, especially for those folks who wish to invest in real estate but are not actually keen on owning a house or real estate! What are the views of the members?
I also read that due to favorable tax laws, REITs generally pay large dividends which appeal to investors looking for income and stability. And because REITs generally do not own single-family homes, they usually do not move in lockstep with the rest of the housing market or the stock market, and so if owns REITs and S&P stocks, when one zigs while the other zags, making the portfolio more balanced.
Now the above is what I read…it will be quite useful to know the feedback from the members if they have had experience investing in REITs…
Thanks for your time
NS from RealPedia - The RealEstate Directory & WWW Encyclopedia
A REIT is just a public company in the business of owning real estate. Overall, there is probably less risk in buying shares of a REIT compared to investing in real estate directly. You have broad diversification and professional management with a REIT.
However, REITs pay market prices for real estate, and they’re not really designed to make huge, quick gains. They are more popular for their dividends, which are required to be something like 95% of their income.
As a result, the decreased risk also brings with it less reward. You’re probably not going to get the ongoing opportunity to earn 50% or 100% or more (per year) on your invested capital with a REIT.
I think you’ll find that this forum is geared more towards the active real estate investor in search of a little more risk but much more reward.
This is not really apples to apples, though, because a REIT is a passive investment where you’re not involved, whereas buying, fixing, renting, and selling properties is a much more hands-on business.
The reality is that most of us (flippers, anyway) are not really even investing in real estate. We’re just buying low and selling high, and houses are just inventory for us. It’s no different than any business that takes products from a supplier and sells them to a buyer, hopefully at a higher price.
An REIT might be a good compliment to your stocks, mutual funds and CDs but is not active real estate investing. You are never going to make huge gains in your wallet using REITs, at least nothing like what you will see actively investing in RE. REITs also don’t give you any of the benefits that active RE investment does- leverage, tax benefits, etc.