REIT vs Real Estate Ownership: The Illusion of Stability

If you are looking at investing in an REIT or real estate, there are several things that you will want to consider. Many people think that owning regular real estate is safer than investing in an REIT. However, this may not necessarily be the case. Here are a few things to consider about both types of investments.

REIT

The REIT is a type of investment that allows you to purchase partial ownership of an entire portfolio of real estate. It stands for real estate investment trust and it is similar to a mutual fund that deals with real estate. 

Real Estate Ownership

Instead of investing in an REIT, some investors prefer to purchase real estate themselves. This option provides you with the ability to own a piece of real estate by yourself. Many people prefer in the control that this type of investment provides. You are also going to keep all of the profits that are generated from the property.

Volatility

Many investors believe that REITs are extremely volatile. If you look at price quotes for an REIT, you will notice that they are continually fluctuating. This fluctuation leads many people to believe that this is a volatile type of investment. When you invest in regular real estate, you are not going to get fluctuating price quotes. In reality, you are only looking at an illusion of stability with regular real estate. Many people think that real estate is more stable because price quotes are not provided. Changing price quotes does not necessarily mean that the investment is unstable.

Diversification

If anything, investing in an REIT is going to be more stable than a single piece of real estate. The fund managers of an REIT are going to strive to provide a diversified portfolio for the investors. They purchase hundreds or thousands of different properties and this provides a nice level of diversification. If one property does poorly, the other properties can pick up the slack. When you only own a few properties, you are not going to be able to benefit from this level of diversification.

Professional Management

When you are trying to decide between these two types of investments, you will also want to consider the aspect of professional management. When you invest in REIT, you are going to be able to benefit from a team of professional managers. They know how to invest in real estate and how to do it profitably. When you are the owner of your own property, you are not going to be able to rely on anyone else for help. You are going to be in charge of making your own investment decisions and there we no one else to blame if something goes wrong. 

Which is Better?

Trying to decide between these two types of investments can be difficult. They both have benefits depending on what type of investor you are. The important thing to realize is that REITs are not anymore volatile than investing in traditional forms of real estate. Beyond that, you can decide whether you want more control over each deal worth you want to let someone else handle it for you.

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