REITs versus Direct Real Estate Investing
REIT is an acronym for real estate investments trusts. A REIT is a lot like a mutual fund of real estate. They come in all varieties. Some invest in commercial property, some in residential property, others in malls or even timber lands.
But why would you do this rather than just go buy real estate yourself?
REIT Characteristics
REITs are liquid. If you buy a REIT today it is likely much easier to sell than a house or office building. In this respect they are very much like mutual funds.
REITS are divided into manageable chunks. REITs are sliced into small pieces just like companies and mutual funds allowing everyone to buy a little slice of property. This is great since not everyone can pop for the loan on a ten million dollar property.
REITs are internally diversified. A REIT typically owns more properties than most individual investors could manage.
A REIT does not require you to be a property manager.
REITs are generally big and can take advantage of economies of scale on administrative and maintenance expenses.
Direct Investing Characteristics
Typically more tax advantaged since you don’t have to takes gains every year as REITs force you to do.
Direct investing allows you to directly contribute to your investment and create value with your hard work or creativity.
Direct investing can leverage your personal vision or knowledge to make uncover a pearl of an opportunity. If you think a revitalization project will result in a big increase in property values in a neighborhood it is unlikely that a REIT will help you take advantage of that.
This just scratches the surface of the options available to you. If you want to know more go to your broker’s site or money.msn.com to read the prospectus from a REIT or two.