What’s the Best Way to Invest in Real Estate?
Real estate is famously known to be the form of investment that made today’s millionaires, well, millionaires. From Barbara Corcoran to many others, it’s clear that those who invest in real estate must be doing SOMETHING right, and if it worked for them, it should work for you, right? Real estate investments came in second place on Forbes Magazine’s list of the best investments to make in 2019, after all, so it’s definitely an investment route worth taking. These investments can be confusing, however, and determining the best way to invest can be tricky. Luckily, in a recent article by Seeking Alpha, long-time real estate research analyst and author of the article, Jussi Askola, has narrowed it down to two ways: rentals or REITs (AKA real estate investment trusts). In this blog, we’ll break down what Askola has found about the two ways of investment and define some terms.
What exactly does “rental” and “REIT” mean?
Rental investments: According to The Balance, investing in rentals means “buying a real estate property, such as an apartment building, and operating it, so you collect a stream of cash form rent.”
REITs: Real estate investment trusts, according to Wikipedia, are “companies that own, and in most cases operate, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands.”
Which is better?
According to Askola, REITs are the way to go because of the following 5 reasons:
They will generate higher total returns over time for most investors.
* This means that the longer the period of time one remains investing, the greater the percentage of the amount invested will be over time.
They provide truly passive income.
* Passive income refers to money made without much effort from the investor (like effort of upkeep).
You enjoy liquidity and low transaction cost.
* Liquidity refers to the ability one has to quickly and immediately turn their assets into cash. Having a low transaction cost means that the costs incurred when buying or selling the commodity will be low, including commissions.
You can easily diversify to mitigate risks and improve risk-adjusted returns.
*REITs essentially allow you to pick and choose what you want to invest in, since it includes everything from hospitals to office buildings, and, compared to private investments, your investment is more likely to be secured.
You have no personal liability.
* As Askola puts it, “with REITs, you are the shareholder of a publicly-listed company. Therefore, you have no personal liability and you cannot lose more than what you invest.”