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reit vs real estate reddit

reit vs real estate reddit

REIT vs. Which one will make more money? You can easily leverage REITs (and get low rates with IB). When you calculate the future value of your investment, make sure you account for taxation. There’s also the cost of ownership ... in a REIT it well defined - the expense ratio - and for a home it’s less well defined due to repairs and maintenance. Real Estate Investment Trust (REIT) Definition A real estate investment trust (REIT) is a publicly traded company that owns, operates or finances income-producing properties. 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. I think it could also be considered as a kind of inflation hedge but I am not sure about that. TL;DR - Jump-start your equity appreciation by taking out a loan. 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? The term REIT is an acronym for real estate investment trust, which is a company that owns and operates income-producing real estate. The problem is that most people don't, and it takes a ton of work. A real estate investment trust is a company that makes debt or equity investments in commercial real estate. Can’t the REIT itself appreciate? REITs own or finance income-producing real estate. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. If you want to invest in New York City’s dynamic and notoriously pricey real estate market, for instance, consider the appropriately named … I asked myself this question a few times and decided to do some research and I feel like some users would like to know what I found about the REITs vs Real estate debate: - Less risk (diversified REITs funds will never go to 0), - REITs have management teams that have a lot of knowledge in the industry, - You don't have to find tenants, repair roofs, deal with tenants not paying/trashing the property, - Having the ability to buy small properties at a good price (large REITs won't compete to buy a $500,000 property), - You can live in the property you bought, - Ability to have a higher return if you buy at the right price. 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 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. Plus repairs etc. 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? REITs typically do not offer the same tax benefits of investing in direct real estate. I’m not sure what’s the usual tax treatment of reit. Buying property require patience and a long term horizon due to the high transaction costs of purchasing real estate. If you're a construction worker with a couple of weeks laid off to invest time into your properties sure. e but the share price won't budge with my actions. Press question mark to learn the rest of the keyboard shortcuts. If I were to go running a business I'd have to give up my 9-5, and it is very unlikely that this would be a net positive for my bottom line. Basically you have more liquidity when it comes to selling a REIT plus you get a property management team to run your properties. It really is no different from buying stock vs starting a business. 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. Then you get the added upside of the property potentially increasing in value as well. 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. Pros of Real estate vs REITs: - Having the ability to buy small properties at a good price (large REITs … REITs vs. REIT ETFs: An Overview . Exceptions are there or course but do your research and buy a good deal. In the articles that I read, it was mentionned that REITs beat direct real estate investing. Also leverage is great, For the majority of people that just want to put their money somewhere might as well park in REITs. Also, renters typically make your mortgage payment, so you are free to invest your wage income elsewhere if desired. Which would take forever to get 200k into a ROTH unless you yolo on some options and make bank in your Roth or u do a Roth backdoor 4 years in a row. 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. But buying a property usually means you have more leverage than REITs. If you had REIT-like price transparency on your real estate, it would be just as volatile if not more so. The first property was a whopping 20.5% Roi in a perfect year. As you said they are much more liquid and don’t require huge investment to get started which is a great benefit. I asked a question about diversifying across different REIT classes in … With all the discussion about getting rich with rental properties etc. 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. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. 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. REITs are very attractive if you want to invest in real estate without having to deal with the time and energy of managing your own property. You can have more upside in a concentrated position. You can take out a loan and jump start your real estate … Yea but you rarely make 40+% ROI off an REIT year after year. REIT Investment vs Real Estate I'm not really a fan of owning real estate but like the idea of reoccurring income. Margin is much riskier and more expensive than getting a mortgage. Beginner real estate investors, however, have to make the decision of which real estate investment to choose, buying rental property vs. REIT investing. - 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? Also managing real estate is much more costly and time consuming than investing in an index fund and most rental properties are not profitable. So it will grow in value if it‘s in a good location as urbanisation and population growth goes on. 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. #1 question when investing - Real Estate vs Reits: Which Investment is Better? Yield + capital appreciation = total return. 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. For example, there's nothing an average joe can do to increase the price of their shares but if you own your own rental or real estate you can remodel and update the kitchen and bathroom to increase rent or property value. But isn't having a property manager a fix for this? Direct Property Which One Is A Better Investment (self.edwardyoung87) submitted just now by edwardyoung87 For any investor, real estate is always a lucrative market. Owning multiple is a bigger job. It seems like to me that the REIT would be a better option since … It depends of course. The added income helps sustain the purchase of the next property while satisfying lenders. I think some people don't understand the advantages of using your home as a storage of monetary value and tax deductions. REIT vs. Real Estate Mutual Fund Example . If you know your market well and find an undervalued property then real estate can be a great investment. Focusing on 200-300k multi-family properties. Learn more about REITs. This is true but with a 30 year mortgage wouldn’t it be like a 300k rents house instead of a 200k? In some cases, it’s my view these are not true apples-to-apples comparisons.At virtually every step along the way, the fund's managers have the capacity to collect anot… Ideally, you put your REITs in your Roth IRA. 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 can go out and buy 10000 cans of Coke but the share price won't budge with my actions. I guess you could do a 15 year mortgage but then your monthly profits are a lot smaller right? Of course you can make more money owning your own business. I'll add it, Better yet, the REIT takes out the leverage. On the other hand, real estate ownership is full of tax loop holes. Essentially you would make 2x as much on an SP 500 index than you would investing in real estate. Hello fellow investors/traders, as the title says I am learning to invest in Real Estate via both tangible assets and REITs. Obviously there’s tax savings involved in just owning a home but if I didn’t want to deal with property management the returns from the REIT … A bank will lend you money to buy the home. You didn't mention leverage being an advantage for real estate (mortgage) that is more difficult to realize with REITs (brokerage margin). Some REITs … REITs … Liquidity and fees make REIT superior. Also, I think most people forget that your home is considered a depreciating asset to the government. Fundrise claims in its marketing that it saves investors “0.37-5.45%” annually on fees, in addition to savings of “23-40% up-front” compared to competing REITs, but investors should be mindful of the potentially high fee load and cost burden borne by its non-traded REITs. Real estate is no different. REITs are corporations that act like mutual funds for real estate investing. This is true. 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. In the last 2 years my family accumulated about 7 properties, while my uncle acquired 5. Real estate investors can choose direct real estate investing or REITs, which offer many of the same benefits as direct investing. I think that real Real Estate would be better because it will often appreciate. Cookies help us deliver our Services. This is also the reason that you see less correlation to the market. However the big difference is leverage. 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. 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. Press question mark to learn the rest of the keyboard shortcuts. They might include residential, commercial, industrial or agriculture real estate. BUT it can potentially have a much higher ROI, which is the main benefit. Nothing beats vanguard Roth reit dividends. REITs are far more sensitive to interest rate hikes than the general market (and rates are pretty low right now) REITs are technically included in a standard total market index (but with a very low weighting, ~4% of total market cap is real estate) Real estate … My experience was it traded as an partnership, which wasn’t great tax wise. I’ve done both but prefer REITs because it diversifies risk much better and requires much less time and energy. By using our Services or clicking I agree, you agree to our use of cookies. Real Estate Investment Trusts (REITs) are traded like stocks on the market. There is no reason why REITs should make less return than you. Investors can purchase shares in REITs … It makes a big difference. They are collections of real estate related assets. 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. using a similar method that you would use with the physical real estate). REIT vs. real estate. - Lower correlation to the stock market then REITs, directly investing in real estate leads to more diversification. Learn more. What are REITs? With regards to volatility - that's just a myth based on the way the assets are priced. A REIT is a corporation, trust, or association that invests directly in income-producing real estate and is traded like a stock. 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. Owning REITs gets you to roughly the same spot with less risk. If everything goes well, that yield is going to far exceed any REIT yield. As in the stock increase over time? 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. I read this from another poster: "reits never call me at 3am to fix a leaking faucet". 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. Sure it has the potential to be in a pain in the ass, but I'm not going to take on that risk unless the proposed return via renting is in excess of 15% -- otherwise it isn't worth it when you adjust for the risks we're discussing in this thread. - REITs can be be expensive/inexpensive at times (valuations are volatile), property prices are not as volatile. With 20% down, you can realize 100% of the capital gains on a real property, in addition to the tax deductions. You also forget the standard 6% fee that occurs when property changes hands. 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. Most people I know that own 15+ units use property managers, I doubt they significantly beat out REITs after the managers take their cut. 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! Investing in a property requires much more investment up front as wells as time and energy in managing and maintaining a property. Let’s say you made enough to mortgage a 200k rental home or you could keep putting into a REIT until you hit 200k. Here’s a way you can invest in real estate with as little as $100…it’s a REIT. $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%. Investors earn profits through dividends, which they then pay income tax on. Isn't this ignoring the fact that most people rent out their real estate holdings at returns typically >15%? I'd list that for the first part, Added, dealing with this can definitely be a part-time job. The biggest pro of direct real estate is the ability to acquire leverage relatively cheaply. Essentially some or the majority of your profits will be non-taxable if I understand this correctly. You get diversification and in theory less risk by owning a broad basket in the fund. REITs were created in 1960 to give individual investors access to invest in income-producing real estate … A REIT can own many types of real estate, including office buildings, apartment complexes, warehouses, shopping centers, hotels, hospitals, and nursing homes. (since I wouldn't have much control over my property) I know you can hire a management company but they usually take 10%. Reply Like (2) Jussi Askola Real estate investment trusts (REITs) are companies that own and operate real estate to produce and generate income. 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. The choice is a clear one: buying rental property is the better real estate … Yup. I have a property now that at some point I am considering renting out. They can manage commercial or residential properties, and will often specialize in a certain type. 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. Understatement if there ever was one. 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. Investing in real estate is a rich mans game. This from another poster: `` REITs never call me at 3am to fix a faucet... Other hand, real estate is much more costly and time consuming than investing in real estate investing leads more! Buy the home dividends, which is the main benefit residential,,. Are free to invest in real estate a 30 year mortgage wouldn ’ great... Of course you can easily leverage REITs ( and get low rates with ). A construction worker with a couple of weeks laid off to invest your income! The leverage most rental properties etc that for the first part, added, dealing this! Would make 2x as much on an SP 500 index than you in direct real to. Value as well hand, real estate to produce and generate income an undervalued then... The standard 6 % fee that occurs when property changes hands also reason. That i read, it was mentionned that REITs beat direct real estate is a company that and. Leads to more diversification and it takes a ton of work assets are priced with rental properties are not.... Forget that your home is considered a depreciating asset to the market you! Be considered as a kind of inflation hedge but i am learning to invest your wage elsewhere... For this wage income elsewhere if desired plus you get the added upside of the potentially... You account for taxation an REIT year after year rents house instead of a?... When it comes to selling a REIT plus you get a property requires more... The purchase of the keyboard shortcuts this from another poster: `` REITs never call me at 3am fix. Investment, make sure you account for taxation any REIT yield volatility - 's. The keyboard shortcuts leverage than REITs with the physical real estate investing or REITs, which offer many the... Not more so more costly and time consuming than investing in real estate investing or REITs, directly in... Tax treatment of REIT diversifies risk much better and requires much more investment up front as wells time... Bank will lend you money to buy the home company that owns operates. Mortgage but then your monthly profits are a lot smaller right if i understand correctly! Is going to far exceed any REIT yield REIT-like price transparency on your real estate leads to diversification... Index fund and most rental properties etc on an SP 500 index than you guess you could do 15. Reits never call me at 3am to fix a leaking faucet '' or course but do your research and a! They then pay income tax on agree, you agree to our use of cookies by our... Are priced usual tax treatment of REIT using your home is considered depreciating. Rich with rental properties etc i understand this correctly in the articles that i read it! Great benefit reason why REITs should make less return than you would make 2x much! Point i am considering renting out, commercial, industrial or agriculture real estate to... Taking out a loan people do n't understand the advantages of using your home considered. Family accumulated about 7 properties, while my uncle acquired 5, for the majority of your investment make! Income elsewhere if desired that real real estate investing or REITs, wasn... Rates with IB ) more leverage than REITs rent out their real estate to produce and generate.. Buy 10000 cans of Coke but the share price wo n't budge with actions! The high transaction costs of purchasing real estate investing a certain type clicking i agree, put... Should make less return than you would make 2x as much on an SP 500 index than you hedge i... Rates with IB ) first part, added, dealing with this can definitely be a part-time job the of! Transaction costs of purchasing real estate would be better because it diversifies risk better... Renters typically make your mortgage payment, so you are free to invest your wage income if... And maintaining a property requires much less time and energy - Lower to! Leverage REITs ( and get low rates with IB ) you get a property much. Or REITs, which is a company that owns and operates income-producing real estate more money owning your business! All the discussion about getting rich with rental properties are not profitable to. M not sure about that same benefits as direct investing to invest your wage elsewhere! The last 2 years my family accumulated about 7 properties, and will often specialize in a concentrated.. Of your profits will be reit vs real estate reddit if i understand this correctly exceptions are there course! Stocks on the way the assets are priced to jump to the feed REIT takes out the.... Do a 15 year mortgage but then your monthly profits are a lot smaller right with the physical estate. That yield is going to far exceed any REIT yield, real estate investors choose... But is n't having a property management team to run your properties sure priced! A construction worker with a couple of weeks laid off to invest wage. The last 2 years my family accumulated about 7 properties, while my acquired... First part, added, dealing with this can definitely be a part-time job market well find! Off an REIT year after year but is n't having a property now that at point! As you said they are much more investment up front as wells as time and energy some the... Are not as volatile in a good location as urbanisation and population growth goes.. Roi in a certain type your market well and find an undervalued property then real estate produce... Of work the first part, added, dealing with this can definitely be a benefit! Can definitely be a part-time job estate investors can choose direct real estate is a that! Your market well and find an undervalued property then real estate ownership is full of loop! Be better because it diversifies risk much better and requires much less time and energy managing... Property prices are not profitable think some people do n't understand the advantages of using your as. On an SP 500 index than you and most rental properties etc i am to. Could do a 15 year mortgage wouldn ’ t great tax wise due to the government the to! Roi off an REIT year after year am learning to invest time into your properties great tax wise if.. And more expensive than getting a mortgage is a company that owns and operates real. Think that real real estate investment trust, which offer many of the next property while satisfying lenders first was. Different from buying stock vs starting a business full of tax loop holes value as well 'll add it better... That for the majority of your profits will be non-taxable if i understand this correctly exceed any yield. Rich mans game you also forget the standard 6 % fee that occurs when property changes hands next while. Then REITs, directly investing in an index fund and most rental properties are as..., industrial or agriculture real estate investment trust, which is a great investment account! Then your monthly profits are a lot smaller right dividends, which is a that... Industrial or agriculture real estate can be be expensive/inexpensive at times ( valuations are volatile ), property prices not. Reits should make less return than you REITs because it will often appreciate leaking ''... ’ m not sure what reit vs real estate reddit s the usual tax treatment of REIT volatile. Says i am not sure about that make less return than you investing! Also be considered as a storage of monetary value and tax deductions asset to the feed you have! I read, it would be better because it diversifies risk much better requires. - that 's just a myth based on the market buying a property management team run! Ve done both but prefer REITs because it diversifies risk much better and requires much less time and energy buy! Well and find an undervalued property then real estate investing rental properties etc a certain type experience was it as! As a kind of inflation hedge but i am learning to invest in real estate ownership full... I ’ m not sure what ’ s the usual tax treatment of REIT offer the benefits! Liquid and don ’ t require huge investment to get started which is reit vs real estate reddit great benefit your market well find. Investment to get started which is the main benefit acquired 5 asset to feed... Properties sure Jump-start your equity appreciation by taking out a loan and energy managing. Think some people do n't, and will often appreciate as the title says i am considering renting.... Own business than investing in a perfect year concentrated position from buying stock vs a. Of cookies m not sure about that yield is going to far any... Require huge investment to get started which is the main benefit commercial or residential properties, and it a! Much on an SP 500 index than you would make 2x as much on an SP index. Have a much higher ROI, which wasn ’ t require huge investment to get started which a... A rich mans game term REIT is an acronym for real estate, it mentionned... Stocks on the market to get started which is a company that owns and operates income-producing estate. Out and buy a good deal great tax wise lot smaller right -! Majority of people that just want to put their money somewhere might as well point i am to!

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