Home Property Buying Rental Property Vs. Investing In A REIT, Part II

Buying Rental Property Vs. Investing In A REIT, Part II

7 min read
0
28


<div _ngcontent-c22 innerhtml="

Shutterstock

Many hopeful real estate investors have the same question: Is it a smarter move to buy property directly or to buy shares of a real estate investment trust (REIT)? As the co-founder and CEO of a single family rental investment marketplace — and someone who has formerly run a publicly traded REIT — I’m often asked this question because of my intimate knowledge of both sides of the coin.

This is the second half of a two-part series that explores the benefits of investing in brick and mortar real estate versus a publicly traded real estate investment trust, commonly referred to as a REIT.&nbsp;If you missed Part I and the goals for which a rental property is the more suitable choice, read it here.&nbsp;In this section, we’ll focus on categories where REITs come out on top.&nbsp;

Investing Goal: Liquidity

Immediate liquidity is perhaps the single greatest advantage of owning shares in a REIT. Like any other stock, it can be sold through your brokerage account at a market-clearing price at relatively low cost. Depending on the type of assets, selling real estate that you own directly takes more time and can have much higher transaction costs if you sell through traditional brokerage channels.

Investing Goal: Low Minimum Investment

While you can buy a REIT share for $10 or less, it, of course, takes more capital to own properties directly. For example, in order to qualify for attractive financing to purchase investment homes, you typically need to put down at least 20% of the value of the home. Additionally, if you are concerned about the potential for expenses to be higher than your revenues in a particular month due to non-recurring expenses or maintenance, it is a good practice to maintain a contingency “slush fund&quot; of 1-2% of the total purchase price for general repairs and times when the property may be between tenants. If you are looking to get some exposure to the real estate industry and want to dip your toe in the water, REITs are a great way to get started.

“>

Shutterstock

Many hopeful real estate investors have the same question: Is it a smarter move to buy property directly or to buy shares of a real estate investment trust (REIT)? As the co-founder and CEO of a single family rental investment marketplace — and someone who has formerly run a publicly traded REIT — I’m often asked this question because of my intimate knowledge of both sides of the coin.

This is the second half of a two-part series that explores the benefits of investing in brick and mortar real estate versus a publicly traded real estate investment trust, commonly referred to as a REIT. If you missed Part I and the goals for which a rental property is the more suitable choice, read it hereIn this section, we’ll focus on categories where REITs come out on top. 

Investing Goal: Liquidity

Immediate liquidity is perhaps the single greatest advantage of owning shares in a REIT. Like any other stock, it can be sold through your brokerage account at a market-clearing price at relatively low cost. Depending on the type of assets, selling real estate that you own directly takes more time and can have much higher transaction costs if you sell through traditional brokerage channels.

Investing Goal: Low Minimum Investment

While you can buy a REIT share for $10 or less, it, of course, takes more capital to own properties directly. For example, in order to qualify for attractive financing to purchase investment homes, you typically need to put down at least 20% of the value of the home. Additionally, if you are concerned about the potential for expenses to be higher than your revenues in a particular month due to non-recurring expenses or maintenance, it is a good practice to maintain a contingency “slush fund” of 1-2% of the total purchase price for general repairs and times when the property may be between tenants. If you are looking to get some exposure to the real estate industry and want to dip your toe in the water, REITs are a great way to get started.

Let’s block ads! (Why?)


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also

Maine kelp, climate, ocean acidity projects get funding

BRUNSWICK – The University of Maine says projects about seaweed, the acidity of Gulf of Ma…