REITs vs. Traditional Real Estate Investing

Are you looking to invest in real estate but unsure if REITs or traditional investing is the right choice for you? Read on to discover the pros and cons of each approach and find out which one aligns with your investment goals.

Real Estate Investment Trusts (REITs) and traditional real estate investing are both ways to gain exposure to the real estate market, but they have some important differences to consider.

Benefits of REITs

• Access to professionally managed portfolios
• Increased liquidity and transparency
• Regular mandated income distributions as dividends

One of the main benefits of REITs is that they provide individual investors with access to professionally managed, diversified portfolios of income-producing real estate assets. This can be difficult and costly for individuals to acquire on their own.

Additionally, because REITs are traded like stocks on the stock exchange, they can offer greater liquidity and transparency compared to traditional real estate investments.

Another aspect to consider is that REITs by law need to distribute at least 90% of their taxable income to shareholders as dividends, which can make them an attractive option for investors seeking regular income from their investments.

If you are interested in learning more about REITs, be sure to check out this podcast episode where I share 10 reasons we like REITs. You can listen to that episode here.

Benefits of Traditional Real Estate Investing

• Greater control over the investment
• Potential for significant capital appreciation
• Regular rental income that can increase over time

Traditional real estate investing involves directly purchasing and managing property. This can provide greater control over the property and the potential for significant appreciation in value.

However, it also comes with greater responsibilities, such as finding tenants, handling maintenance and repairs, and dealing with the various legal and financial aspects of property ownership.

Traditional real estate investments generate revenue mainly through rental income and appreciation in the property value (vs. REITs generating income via dividends and any price appreciation of the exchange-traded REIT).

Conclusion: Which Real Estate Investment is Right For You?

Ultimately, the decision between REITs and traditional real estate investing will depend on your individual goals and risk tolerance.

REITs may be a good option for those looking for a more passive investment, while traditional real estate investing may be more suitable for those who want to take on a more hands-on role.

It’s important to carefully consider the benefits and drawbacks of each option before making a decision.

Seeking the advice of a financial advisor or real estate professional can be helpful in determining which type of investment is best for you.

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