Buying in Rental Property vs Investing in REITs

Sooner or later, most serious investors will consider adding real estate or increasing real estate as a component of their portfolios. For those so inclined to move forward, two options exist. A real estate investment trust is a company that owns, operates, or finances income-producing property and can be bought and sold much like a stock. Alternatively, rather than a REIT, an investor can buy individual rental property. Primior can help explain the practical differences between the two and advise the individual investor on the optimal path for his or her particular situation.  

What are expectations behind investing in rental property

Buying in rental property provides the investor the maximum control over the investment. Each property is unique and choices can be made as to the type of property, location, and income potential that are suitable to the investor’s risk tolerance and ultimate goals. One of the most significant advantages of buying individual properties is leverage. Typically, an investor can assert 100 percent control over a property for a 20 percent investment. And equity is always the promise of a real estate investment. Hold on to the property, and the value will increase. This is more of a certainty when well-crafted improvements are made by the investor.

What makes a REIT investor unique?

While the REIT investor does enjoy some of the same benefits, there are notable distinctions. Initially, although the choice in REITs is diverse in terms of type of properties and sections of the country, the investor is limited to the existing REIT market. While leverage and equity are significant aspects of the economic viability of a well-managed REIT, they are less a factor than for the individual rental property investor.

What should I be most concerned about when investing in REITs or rental property?

Perhaps the most distinguishing factors between buying in rental property and REITs are the manner in which an investor enters and exits the specific investment; that is, minimum investments and liquidity. The biggest drawback for most potential buyers of rental property is the down payment. Either lacking adequate funds to secure their property of choosing or reluctance to committing such a large chunk of their investment funds into real estate, many decide not to act. There are no such concerns with REITs, which are characterized by a low minimum investment. Similarly, when the time comes to sell a property, there is not necessarily the perfect buyer waiting with a fair offer and favorable terms. REIT markets are far more liquid.

A final issue is one of management. A rental property owner must maintain his or her investment, collect the rents, and otherwise deal with whatever issues impact the property in a professional manner. Either doing it oneself or hiring a trusted company, property management is key to a profitable venture.

Primior has extensive experience and a proven performance record. Contact us today to discuss your investment goals.

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