Up and Down of Real Estate Investments

One of the easiest ways to invest in real estate is through a special type of asset known as a REIT (which is short for real estate investment trust). By allowing companies to pay no Federal income tax in exchange for paying out 90% or more of their profits to shareholders as dividends, you can take a small ownership stake in multi-million dollar malls, hotels, parking garages, and much more. These investments can be held in brokerage or retirement accounts. In the case of real estate when you invest in real estate, you are buying physical land or property. Some real estate costs you money every month you hold it - think of a vacant parcel of land that you hope to sell to a developer someday but have to come up with cash out-of-pocket for taxes and maintenance. Some real estate is cash generating – think of an apartment building, rental houses, or strip mall where the tenants are sending you checks each month, you pay the expenses, and keep the difference as the profit.

It is important what you call things. A lot of confusion about how things work stems from things being called the same thing when they are not. Real estate is not a thing. It is many things. They are all different and to be successful in each takes a different model.

  1. Real estate broker or agent (also bird doggers and contract flippers)you are a salesman. You just sell real estate. What you do is a job.
  2. Buy Fix up and sell (also land development where you buy land and build properties on it) you are not investing in real estate, you are doing is a job. You may be self employees but you have a job.
  3. Buying land or nonperforming assets waiting for them to appreciate and be bought by someone else to develop is not investing it is speculation.
  4. Buying properties that produce an income (usually rental houses office buildings or apartments) is investing.
    One way to figure out if you are investing or working in real estate is to look at the tax treatment of the money you make. If you are subject to ordinary income rules you are not investing.

Investing in a REIT is one of the easiest and maybe one of the safest ways to invest in real estate. You are essentially buying stock in whatever REIT you are in and the price goes up and down everyday like the rest of the market.

The big selling point like ashanksharma mentioned are the dividend yields. Some of these REITs offer 10+% dividend yields and sometimes they pay out monthly or quarterly depending on the company. Obviously some firms are safer than others but it is investing. Another positive is you don’t have to worry about collecting rent or dealing with property issues which can happen every day. When you invest in a REIT you buy/sell as you would with any security through a brokerage account and collect the dividend checks.

Hope this helps!

I consider a REIT an investment because they own many types of real estate from office and apartment blocks ,shopping malls etc.
The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.

In my opinion, REIT is structured much differently than mutual funds, mainly because of the dividend payouts. Mutual funds are a basket of a variety of investment tools that are managed by the mutual fund manager. Whereas REITs are companies that own real estate and essentially pay out 90% of their net income to investors as dividends so they do not pay federal income tax mentioned by ashanksharma.

I do not know of many mutual funds that pay such lofty dividends. They do not own enough of one security to do it anyways since it is a conservative approach to investing in risky assets such as individual stocks. If REITs make more money on rents, the shareholders will see it in their dividends in the future.

I am not recommending either investment because that is not my place but the 2 are totally different investment vehicles for one’s portfolio.

Evenn I do consider REIT investments

Real estate investment trusts (REITs) allows a great opportunity for both small and large investors to get exposure to the many commercial real estate area with transparency in a diversified portfolio with relatively low leverage.