Why Direct Real Estate Investments Win Out Over REITs
I often get questions about REITs (Real Estate Investment Trusts), and whether investing in these is a better idea than actually buying homes as an investment. In my experience, REITs are a good option and may be a good way to figuratively dip one’s toes into the real estate space. However, I would recommend direct real estate investments over REITs for several reasons. You can click here to learn why I say so.
What are REITs and how do they work?
Investing in REITs is a little like investing in the share market or investing in gold in dematerialized form. You don’t actually own X piece of land or Y address. You, along with others, own a share of what are usually huge commercial properties. The fund managers usually raise tens of millions, even billions via REITs, and make massive investments.
However, this does not give you the benefit of the 30-year fixed-rate loan; something that I am always waxing eloquent about – and with good reason! This is a gift that keeps giving in a sense over the entire duration of repayment. The amount never increases – rather it keeps getting easier and easier to repay as the years go by, as inflation rises and everything around becomes more expensive. This is something that Warren Buffet himself recommended when speaking with me. Read more about it in this Entrepreneur Magazine article.
Why invest in single family homes?
And then there is another reason why I believe direct purchase of single family homes is the best kind of investment – and that is rental incomes. When you buy homes in some of the larger metropolitan areas in the Sunbelt states, you are creating a source of passive income for yourself by way of rental income. While the rent income will follow inflation and keep increasing over the years, the repayment amount of your 30-year loan remains the same.
In just about ten years, you would find that your loan balance is just about a quarter of the value of the home you own. This makes it possible for you to repay the loan early, even to buy several homes as investment. Owning several homes can help you create valuable assets for yourself while at the same time generating a passive rental income for you for life.
So, for all of these reasons, direct purchase of real estate is a better option than REITs investments for those who want to create wealth and achieve their financial goals. You can listen to my latest episode about this, and if you have any questions, feel free to contact us at ICGRE.