To Some, Purchasing REIT's May be A Wiser Alternative to Land Ownership
By Anthony Rhodes
We’ve all heard the famous axiom “Buy land, God
isn’t making any more” which emphasizes the inherent benefit of limited
quantity made available to real estate owners. The desire to purchase land
strikes at the core of our beings as citizens, and the ownership of property
remains our ambitious pursuit, while standing as the centerpiece of what we
call the American Dream. When one thinks about the advantages of real estate as
an investment, it’s also difficult to argue with their conclusions. After all,
land can be made to produce income, can be passed down to future generations
quite easily, and perhaps most importantly of all, usually appreciates in
value. Certainly, this product is an aspiration for many individuals. But is it
a suitable investment for all who are drawn to its potential benefits?
While real estate as an investment makes sense
amongst those with both the time and resources available to cultivate it into a
worthwhile financial endeavor, others who are attracted to its alluring
qualities, may not fare as well in their attempts to produce similar outcomes.
So, what should one do if they wanted to participate in this multi-billion
dollar business, but lacked the commitments of time and money needed to do so
in a traditional fashion? To some such individuals, REIT’s may offer the
perfect solution. And although they may not provide many of the tangible
benefits enjoyed by landlords and other real estate owners, the good news is,
they don’t have many of the potential headaches, either.
To REIT or to REIT?
First of all, let me explain to you exactly what
REIT’s are. The acronym REIT stands for Real Estate Investment Trust,
and they are offered in two different varieties: equity REIT’s and mortgage
REIT’s. An equity REIT is an investment, which actually purchases real
estate. As a shareholder of the product, your profit or loss is determined by
either the income it receives from rent, or by the selling of properties.
Conversely, a mortgage REIT works more like a bond, in that it loans
money to real estate owners, and passes on the interest it receives to its
shareholders. The determination, as to which REIT is right for you, usually
depends on how aggressive or conservative you are as an investor. More
aggressive investors are generally attracted to equity REIT’s, with its
potential for higher gains. Conservative investors usually like mortgage REIT’s
because of its relative safety and predictable revenue streams. But what makes
either of these products so appealing to many of those bitten by the real
estate bug, is that they don’t have to track down tenants or provide facility
maintenance, but can still receive the proceeds generated from real estate
property. This benefit alone makes sense to those without large sums of money
or the credit requirements necessary for individual real estate purchases, and
can prove a pretty good diversification play for your portfolio, also.
Shut Down Start Ups
If you find the prospect of dealing with tenants or
managing property an unattractive part of the real estate experience, investing
in REIT’s may be a wiser alternative. Owning these products will undoubtedly
satiate your appetite for the monetary rewards of investment property, and will
also help to insure that you don’t bite off more than you can chew in the
process.
(Anthony
Rhodes is a
Registered Investment Advisor and owner of wealth management firm The Planning
Perspective www.theplanningperspective.com)
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