Also, I think most people forget that your home is considered a depreciating asset to the government. If you buy a well priced home in a growing neighborhood let's say at 225k there's a good chance your investment will appreciate over the next 5-10 years. It depends of course. But buying a property usually means you have more leverage than REITs. It makes a big difference. This is like asking “should I buy a single concentrated equity or buy a fund that invests in a lot of different equities from different issuers?”. I have a property now that at some point I am considering renting out. If you know your market well and find an undervalued property then real estate can be a great investment. Obviously, I could be wrong and I could be missing out on a lot of points, feel free to comment and I'll add your thoughts to the list! Your minimal investment (down payment) allows you to start appreciating the asset immediately, at its current market value, rather than waiting for you to earn the entire market value before appreciating. As you said they are much more liquid and don’t require huge investment to get started which is a great benefit. REITS vs Real Estate Let’s say you made enough to mortgage a 200k rental home or you could keep putting into a REIT until you hit 200k. can also go down in value so its a double edged sword... Real estate is great if you’re a savvy investor and know how to find opportunities and or add value. You might not get 5000+ returns like Bitcoin or penny stocks but real estate is a good diversication tool and as long as you don't overpay for your home you can pretty much guarantee your investment will be stable as housing IMO is less volatile than stock market. If you're worth > $1M and want a nice income stream it's great to diversify with real estate otherwise it's just a savings account with a lot more stress. I think it could also be considered as a kind of inflation hedge but I am not sure about that. The only problem is that when you sell your rental property you are taxed based on the new price (appreciated value of the house) - the (depreciated value of the house the government sees) But yeah, the control aspect is a huge point but what would you recommend for someone who wants to buy rental properties outside of the state that they will reside in? REITs typically do not offer the same tax benefits of investing in direct real estate. With 20% down, you can realize 100% of the capital gains on a real property, in addition to the tax deductions. Basically you have more liquidity when it comes to selling a REIT plus you get a property management team to run your properties. I think some people don't understand the advantages of using your home as a storage of monetary value and tax deductions. Reply Like (2) Jussi Askola Plus repairs etc. You only know the price of your real estate when it is marked to market (and even then, only for certain when it is eventually sold), but you know the price of your REIT every second that the stock market is open. I guess you could do a 15 year mortgage but then your monthly profits are a lot smaller right? Buying property require patience and a long term horizon due to the high transaction costs of purchasing real estate. Pros of Real estate vs REITs: - Having the ability to buy small properties at a good price (large REITs … (since I wouldn't have much control over my property) I know you can hire a management company but they usually take 10%. REITs vs Real Estate What are your thoughts on investing in REITs on margin (to replicate the leverage of buying a property) vs just owning a property? You can take out a loan and jump start your real estate … You can get a similar effect from a REIT by buying it, only looking at the price once a year, and even then looking at a lagged, average price (i.e. Real estate stocks tend to be correlated with interest rate fluctuations over short periods of time, which is the main reason for the big underperformance in the three-year row. They can manage commercial or residential properties, and will often specialize in a certain type. REIT vs. real estate. $225k in an index fund will easily outperform $225k in real estate, historically adjusted for inflation the SP 500 gained an average of 7% every year whereas real estate only gained 3.7%. On the other hand, real estate ownership is full of tax loop holes. - REITs can be be expensive/inexpensive at times (valuations are volatile), property prices are not as volatile. REIT vs. With regards to volatility - that's just a myth based on the way the assets are priced. REITs own or finance income-producing real estate. I read this from another poster: "reits never call me at 3am to fix a leaking faucet". Real estate investment trust exchange-traded funds, or REIT ETFs, offer many benefits to a fixed-income portfolio such as capital appreciation and a stable source of dividend income. The problem is that most people don't, and it takes a ton of work. Learn more. When you calculate the future value of your investment, make sure you account for taxation. Sure, it might take you forever to payoff a home and can possibly make more in the market with an equal amount of capital but the advantages of bank financing / leverage and having a good home in a good area is underrated. Investing in real estate is a rich mans game. Press question mark to learn the rest of the keyboard shortcuts. It seems like to me that the REIT would be a better option since … Real Estate Investment Trusts (REITs) are traded like stocks on the market. It seems like to me that the REIT would be a better option since you can liquidate it easily and you make more per month in most cases. Real estate investors can choose direct real estate investing or REITs, which offer many of the same benefits as direct investing. Then you get the added upside of the property potentially increasing in value as well. REIT Investment vs Real Estate I'm not really a fan of owning real estate but like the idea of reoccurring income. The term REIT is an acronym for real estate investment trust, which is a company that owns and operates income-producing real estate. - https://www.forbes.com/sites/marcprosser/2017/07/19/data-proves-reits-are-better-than-buying-real-estate/#994d8dad6b7d, - https://seekingalpha.com/article/4204857-reits-vs-rentals-best-way-invest-real-estate, - https://fundrise.com/education/blog-posts/reits-vs-rentals-whats-the-best-way-to-invest-in-real-estate, risk of your tenants either not paying rent or trashing your property? A real estate investment trust, or REIT (pronounced reet), is a unique type of company that allows investors to pool their money to invest in real estate assets. TL;DR - Jump-start your equity appreciation by taking out a loan. Also, renters typically make your mortgage payment, so you are free to invest your wage income elsewhere if desired. You get diversification and in theory less risk by owning a broad basket in the fund. I'll add it, Better yet, the REIT takes out the leverage. Here’s a way you can invest in real estate with as little as $100…it’s a REIT. Ideally, you put your REITs in your Roth IRA. Hello fellow investors/traders, as the title says I am learning to invest in Real Estate via both tangible assets and REITs. I’m not sure what’s the usual tax treatment of reit. REITs were created in 1960 to give individual investors access to invest in income-producing real estate … There is no reason why REITs should make less return than you. Hypothetically, if I were to put 100k in a few REITs with 10%+ dividends, set a trailing stop loss limit of 10-15%, I feel like that's a much safer investment than owning real estate. This is true. Unless you need a place to live for 5+ years, I feel like direct real estate investing can be superior if you live in the property. REIT vs. Real Estate Mutual Fund Example . REITs vs. REIT ETFs: An Overview . Let’s say you made enough to mortgage a 200k rental home or you could keep putting into a REIT until you hit 200k. Essentially some or the majority of your profits will be non-taxable if I understand this correctly. If you're a lawyer/accountant/engineer etc that can work those hours and get paid for it your ROI on your time spent is way more iffy, assuming you're almost as productive as the construction worker (that has friends in the carpenting/plumbing/electrical trades).Owning a property is a job. You can easily leverage REITs (and get low rates with IB). Nothing beats vanguard Roth reit dividends. Pros of REITs vs Real estate: - Higher return on average - Less risk (diversified REITs funds will never go to 0) - More diversification - REITs have management teams that have a lot of knowledge in the industry - REITs are a lot more liquid - Less capital required - You don't have to find tenants, repair roofs, deal with tenants not paying/trashing the property. I spend my 9-5 doing what I'm best at, and my savings get invested in a way that seems best but which doesn't demand too much of my attention. Real estate is no different. In the articles that I read, it was mentionned that REITs beat direct real estate investing. REITs are corporations that act like mutual funds for real estate investing. BUT it can potentially have a much higher ROI, which is the main benefit. I'd list that for the first part, Added, dealing with this can definitely be a part-time job. REITs … Also leverage is great, For the majority of people that just want to put their money somewhere might as well park in REITs. With all the discussion about getting rich with rental properties etc. It really is no different from buying stock vs starting a business. By using our Services or clicking I agree, you agree to our use of cookies. Of course you can make more money owning your own business. Owning multiple is a bigger job. The biggest pro of direct real estate is the ability to acquire leverage relatively cheaply. In the last 2 years my family accumulated about 7 properties, while my uncle acquired 5. Yea but you rarely make 40+% ROI off an REIT year after year. A bank will lend you money to buy the home. Understatement if there ever was one. Investors can purchase shares in REITs … Investing in a property requires much more investment up front as wells as time and energy in managing and maintaining a property. You can have more upside in a concentrated position. On paper it looks good to just go in on REITs with a 4-6% yield but the major advantage to owning your own real estate is control. They are collections of real estate related assets. Yup. So it will grow in value if it‘s in a good location as urbanisation and population growth goes on. The choice is a clear one: buying rental property is the better real estate … If you want to invest in New York City’s dynamic and notoriously pricey real estate market, for instance, consider the appropriately named … Isn't this ignoring the fact that most people rent out their real estate holdings at returns typically >15%? Under liquidity risk, real estate agents will charge you 5-6% of the property value if you want to sell the the physical property vs. few dollars for trading REITs. Owning REITs gets you to roughly the same spot with less risk. Trusts ( REITs ) are traded like stocks on the market of monetary value and tax deductions deal... 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