REITs vs. Real Estate: What’s the Difference?

REITs vs. Real Estate: What’s the Difference?

Real estate investors are often floored by the wealth of opportunities that are available in connection with the property market. Many new investors who arrive at real estate think that the best way to generate income for their portfolio is through the management of rental properties. Buying a home or apartment in order to rent it out to tenants is a great way to increase your monthly cash flow, but rental income is often highly volatile. You can never be sure that you’re renting to reliable tenants who will care for your property and pay you on time throughout their tenancy.

With the coronavirus pandemic creating a surge in layoffs and a reduction in working hours and pay for millions of people in the U.S. and all around the world, many landlords are reassessing the diversity of their holdings and hoping beyond hope that they aren’t stuck with the bad luck of a tenant who has suddenly lost their ability to pay the rent.

While rental income has always been a quality driver of wealth, there are so many other ways to engage with the real estate market as a property investor. REITs are one example of this alternative, yet they remain highly misunderstood by novice investors and seasoned professionals alike. With this guide, learning to diversify your portfolio and incorporate a variety of different real estate holding types can provide you with the consistent returns that you’re looking for in this uncertain time.

A REIT is a stock market commodity that’s built differently.

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REITs, or real estate investment trusts, are traded within the stock market. But a REIT isn’t a typical stock asset like an index fund or individual company share. Instead, brokers who purchase REITs are buying shares of real properties that exist in the physical world. Bundled together and managed professionally by a listing service, an international realty company, or other wealthy property owners and managers, REITs provide a hedge against the market’s uncanny ability to suddenly shift course and thrust renters and homeowners into leaner times.

The REITs vs real estate proper debate has been ongoing for decades, but it boils down to a simple personal preference in the realm of risk management. REITs bundle hundreds or thousands of homes, apartments, and commercial real estate assets together in order to generate rental income on a monthly basis. Their profit margins are similar but distinctly lower than direct asset management. However, with the volume of assets held within a REIT fund, owners are able to rest easy knowing that default will only register as a drop in the bucket. For a direct owner, default from a tenant means the elimination of profit altogether for an extended period of time.

Fix-and-flip approaches offer an alternative to both.

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Some real estate investors utilize a knowledgeable real estate agent, like Marc de Longeville, in order to identify homes that have been foreclosed on or are on the market at a reduced rate as a result of the lengthy listing or other factors. Realtors have a knack for finding these steals on the market, and many investors choose to buy up these types of properties so that they can make some structural upgrades and quickly resell the home for a healthy markup. In the current marketplace, while renters may be suffering from precarity, they are simultaneously moving rapidly on property listings for sale. Brokers and real estate agents are key assets in this arena, so hiring a great realtor in Los Angeles, New York, or Chicago can help you parse real estate listings that meet your needs in order to continue building toward expanded wealth generation through the property market.

Investing in property through these two great alternatives is a fantastic way to add to your existing holdings and buffer your earnings.