When you first hear the term “REIT” (Real Estate Investment Trust), it’s easy to believe you’ve found a direct pathway to the real estate market.
After all, the very name suggests an intimate relationship with bricks and mortar.
But in truth, while REITs do have their merits, they’re not synonymous with true real estate investing.
Let’s dive into why.
1. Liquid vs. Illiquid Assets:
REITs are traded like stocks on major exchanges. This means that you can buy and sell REIT shares.
Real estate, traditionally, is illiquid.
While this might seem like a point in favor of REITs, the illiquid nature of direct real estate can be an advantage.
It can help in weathering short-term market fluctuations and create long-term value.
2. Yield and Appreciation:
REITs focus on distributing high dividends to shareholders. It sounds appealing, right? But there’s a catch.
These distributions can sometimes come at the expense of property maintenance or further investment, which could stifle potential long-term appreciation.
Direct real estate investing offers both monthly cash flow and the potential for property appreciation, allowing investors to reap dual benefits. There are also tax advantages REITs can’t touch.
3. Hands-on vs. Hands-off:
One might argue that REITs offer a hands-off investment.
True, but remember: real estate isn’t about owning; it’s about control.
Direct investments allow you to choose tenants, approve expenses, and make decisions that can influence ROI.
REITs, meanwhile, place these decisions in someone else’s hands.
4. The Tax Conundrum:
Ah, the beautiful world of real estate tax benefits! investing in real estate often presents tax benefits like depreciation and mortgage interest deductions.
Unfortunately, REITs don’t offer the same incentives.
While they do distribute at least 90% of taxable income to avoid paying corporate income tax, the dividends you receive are usually taxed as regular income.
5. Personal Touch and Localized Knowledge:
Investing in real estate allows for a personal touch. You get to know the property, the market, and the community.
This localized knowledge can offer insights that broad, national REITs might overlook.
As they say, real estate is about location, location, location.
No REIT can give you the granular expertise that comes with direct involvement.
So, where does this leave us?
REITs have their place in the investment landscape. They offer diversification and can be a part of an investor’s portfolio. But equating them with direct real estate investment is a simplification.
For those seeking a true immersion in the real estate world – the tangible touch of property, the thrill of negotiation, and the nuances of local markets – direct investments are unparalleled. Moreover, when we talk about cash flow, equity appreciation, and tax benefits, direct real estate shines.
At Headway Capital Investments, we understand the intricate dance of real estate.
Our tailored investments in apartments, car washes, and hard money lending offer avenues for genuine engagement with the market.
To harness the potential of real estate, partner with experts.
It’s not about putting money in the market; it’s about understanding it, feeling it, and reaping its myriad benefits.
When you’re ready, there are 2 ways we can help you:
1. Interested in partnering with us as a passive investor? Schedule a call with us here. We’d like to learn more about your unique investment goals.
2. Ready to apply to invest? Fill out our application here. We’ll be in touch shortly after to see if we’re a good fit for you.
** Please note, investments are for accredited investors only at this time. **
