Real Estate Investing Without the Headaches: How REITs Fit Into Your Portfolio

The great American humorist, Will Rogers, said it best: “Buy land. They ain’t making any more of it”. What he is saying is that land is the ultimate investment opportunity, perpetually in demand, permanently scarce in supply. He’s not wrong. But buying land is prohibitively expensive for many people. Building on that land is even more expensive. And even if you can afford to buy and build on the land, leasing or managing the land is stressful and time-consuming.

When most people think of investing in real estate, they are not thinking of their primary residence. Rather, they are thinking of buying land or an existing home/building, which they will rent out for passive income and receive some capital appreciation over the years. Finally, they might sell the property at a substantial gain. This is direct real estate investing, and it’s quite appealing. Many people are pretty successful with this type of investing strategy.

But this strategy isn’t for everyone. Not all people have the money, time, experience, skill, or patience to engage in direct real estate investing. Direct real estate investing involves lawyers, property managers, local or state ordinances, unruly tenants, maintenance costs, among a whole host of other headaches. For some people, these headaches are worth the cost of the return on their direct real estate investment. But many others love the idea of real estate investing, just not the reality of what it takes to be successful.

This is where REITs come into focus. REITs are Real Estate Investment Trusts, which provide indirect exposure to real estate investments. If you want to earn some money from real estate without having to actually buy real estate, REITs are your best option.

A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments without buying, managing, or financing any properties themselves. REITs invest in most real estate property types, including apartment buildings, cell towers, data centers, hotels, medical facilities, offices, retail centers, and warehouses.

There are two main advantages of REITs. First, they are highly liquid, unlike physical real estate, as they generally are publicly traded like stocks. Second, they do not require direct management of the properties.

There are two main disadvantages of REITs. First, they offer little in the way of capital appreciation, unlike a physical property which may increase in value over the years. REITs generate income in the way of dividends. Second, REITs do not offer the tangible property ownership many people prefer. REITs, like mutual funds, are pooled investments.

Direct real estate can be very appealing. And for some, it can be very successful. But for others, they want to invest in real estate without the hassles, even if this means some tradeoffs. REITs might be the answer for you, and we’re happy to help you explore this possibility.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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