REITs vs. Real Estate Investing

Daniel Penzing
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What are REITs?

A Real Estate Investment Trust (pronounced “reets,” like the kid in second grade who was better at all the sports than you were) is a company that invests in or owns real estate properties. REITs were established in the 1960s as a way to help more Americans invest in real estate by providing them with a safe way of investing in this asset class.

Using REITs allows individual investors to invest in public real estate without the investment in knowledge, of time, skill, maintenance, and capital to manage a portfolio of properties.

A REIT is required to distribute at least 90%, and sometimes up to 100%, of its taxable income to its shareholders as dividends.

There can be two types of REITs: Equity REITs and Hybrid/Mixed-Use REITs.

Directly Owning Real Estate

If you’re looking for a way to diversify your portfolio and don’t mind rolling up your sleeves, investing in real estate directly is a great idea. There are a lot of advantages to owning real estate, like being able to live in it and building equity that you can leverage against other ventures. But there are also downsides, including the time and money that you could spend maintaining the property.

Rental Properties

If you’d like to own a real estate investment but don’t have the money to purchase a home, one solution is to rent out the home while you wait for the value to increase. It’s not quite as adventurous as owning the home outright, but you’re still on the hook for the expenses and upkeep, and if the home has increased in value, you can still sell it and pocket a profit.

Crowdfunding Real Estate

If you’re not interested in dealing with the hands-on work associated with owning a rental home, you can still reap the benefits of real estate investing by becoming a part of a real estate investment platform. With a platform like RealtyMogul, you can invest in high-quality real estate through crowdfunding.

Which is Better?

A REIT or Real Estate Investing?

REITs are short for Real Estate Investment Trusts. They are markets in which real estate properties are brought together and separately traded.

An individual investor is not permitted to purchase an entire piece of property through a REIT. A REIT is a beneficial form of real estate investment because it permits the individual investor to broaden their choices beyond their immediate local area.

The first REIT was created in the late 1920s in the United States and the first REIT listed on the stock market was a company called the Industrial Realty Trust in 1969. By law, a REIT must invest at least 75% of their assets in real estate related investments. The REIT is then taxed on the dividends distributed to the shareholders rather than at the corporate level.

The investment trusts listed in the stock market carry out a number of important functions that are attractive to a business person or an individual investor. They assist in funding for a development, they can provide a stable source of liquidity for the property owners who need funds to help pay off debts or to pay other costs of ownership, they can also provide debt and equity to a number of other disputes or ventures.