Rentals may be more work, but get some tax advantage in terms of depreciation, maintenance expenses, etc. I may get back in the game later if I get bored or want more money. REIT's are more convenient than rental properties. REITs are better diversified, liquid, cost efficient, and therefore, less risky. So, the question. Compared to rental properties, REITs provide a much more affordable way to invest in Singapore real estate. aren't the reits themselves usually using leverage though? A real estate investment trust, or REIT (pronounced reet), is a unique type of company that allows investors to pool their money to invest in real estate assets. However, the degree to which these tax advantages can be realized depends on the specifics of the investment vehicle. By pursuing multiple investment opportunities, investors can increase their income potential and minimize overall risk. Financial Independence is closely related to the concept of Early Retirement/Retiring Early (RE) - quitting your job/career and pursuing other activities with your time. And that education is free... My cash on cash returns are astronomical. Essentially, a REIT functions like a real estate mutual fund, but can be bought and sold like a typical stock. The work required to manage multiple properties doesn't scale proportionally to the number of properties that you own, whereas the the revenue does. However, owning a rental property will save you more on taxes. Also, is it possible to get astronomical returns on cash when purchasing properties all cash no mortgage? Direct Depreciation and others benefits...I can list which will not be available in REIT. Same question running through my mind. I own REITS as 11% of my portfolio (6% US, 5% international). Crowdfunding allows entrepreneurs to raise capital for projects from a large group of … Rental vs. REITs: Taxation When it comes to taxes, rental properties are more tax efficient than REIT investments. +30% returns for US REITS comprised almost half of the positive return of my overall portfolio. Owning REITs is stupidly simple. Are REITs a suitable replacement? They can and do issue common shares and/or preferred stock all the time for that purpose, Leverage is also a discretionary choice made with current rates in mind. VNQI if you want to go international. For me, it just isn't worth the headache. Gains between rental property (assuming one can afford it in the first place) vs. REIT seems really far apart. I've read a fair amount about the pros and cons of owning a few rental properties vs. investing in REITs. What do you suggest in tougher situations like those? Rent may come down, worst case 20% down on rent, vacancies may increase...etc plenty of risk involved with individual rental. the real advantages of REITs are of course that you can obtain high dividend yield properties without the headaches of management - in my own portfolio is SNH or OHI for senior living homes - I picked both of them up when they were in the low 13,20 range respectively and are reaping in 13% yields without having to pay for maintanence costs, paying a management company, owning insurance etc etc. I rebalanced from there into international equities that got crushed in 2014. Real estate vs. stocks is a long-running debate. Rental properties. At the trust level, REITs are exempt from income tax. You can make a higher rate of return on cash with rentals. In traditional renting, a real estate investor buys a rental property in order to rent … REITs vs Real Estate Ownership: Should You Buy Your Own Real Estate Property or Invest in a REIT? ... Is it a smarter move to buy property directly or to buy shares of a real estate investment trust (REIT)? Having said the above, should I happen to find the right property– and that includes a property … This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. In summary, the returns you can get on rental properties are typically much higher due to leverage and tax considerations, especially if you consider that you are building up equity in the rental property over time. There are probably specific REITs that will have dividends that are similarly durable to rental income, and some that are more or less so. Yeah: I guess my question is too general. You also manage your own investment directly, so if you're savvy, you can make really nice returns (cash flow plus appreciation). I usually sell my REITS after I've made a 15 to 20% capital gain, and usually regret it. Unfortunately that is at the cost of a lot of complexity. Related: Four Things to Consider Before Purchasing an Airbnb Investment Property. REITs purchase commercial properties and distribute the rental income to shareholders as dividends. VNQ will get you there dirt cheap. 2014 proved why they are important in an asset allocation. In REIT company makes mortgage and you can not leverage (or margin cost is too high). In a market crash, I don't want to be cashing out stock (which is what I usually do), so my rental properties provide another source of income. At that point, it might just be better to drop it into a total market ETF or something similar. Traditional rentals are one of the long term investment strategies. 4 Professional management (in most cases) 5.Low transaction costs The advantages of physical property investment 1.gearing 2.own decision making But for me I think you pointed it out yourself, the biggest advantage of owning physical property is not following the price every day, so it lends itself to a long term investment. Making 25% on an investment through appreciation, rent increases, equity buildup and cash flow is entirely possible if you leverage your money in real estate. Looking for opinions on the pros and con's for both options to gain exposure to real estate. A decent condo in my area will go upwards of $400k. We look at historical returns so you can decide which is a better investment. Buying Rental Property Vs. This matters for me because I live off my investments. I can't comment on REITS because I don't use the stock market at all expect gambling with options every now and then. REITs have historically strongly outperformed private real estate. a week's time) and actually learning about REITs, looking at a 3-4% dividend rate doesn't make that much sense w/o the underlying appreciation, right? Let's just say $450k, since that's what one down the street from me went for the other day. More often discussions of different investment methods are comparing things like rental properties and flipping properties… I think these thoughts on REITs are interesting: http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/, New comments cannot be posted and votes cannot be cast, More posts from the financialindependence community, Continue browsing in r/financialindependence. To give you a better idea of weighing different options, I’m going to choose a battle between: Rental Properties and Real Estate Investment Trusts (REITs). I'm guessing you get much higher leverage for your money on real estate than REITs, but I could be wrong. In my area, that condo would rent for approximately $1500-1800/mo. REITs. I have been trying to diversify into rentals as well, but a high tax bracket in my state is a big barrier. That has to come at a cost, in the form of lower yields relative to owning your own property. Thanks for the input. I guess my main question was whether rental income was less correlated with the market. IIRC, this happened in a big way back in early 2000's too. I'm 31. Doesn't this highly depend on the market you are in and how much competition exists for great deals? The advantages of a REIT are 1. Sales of property or stake in a REIT … The term REIT is an acronym for real estate investment trust… Which gets you a better return? Am I likely to see rental incomes go down in a similar timing and level to a REIT dividend? Thanks. This isn't possible in all markets and some have very high barriers to entry like NYC or SF where property prices are astronomical and there are many overseas all cash bidders for every property shown. My current real estate vs stocks is 4:1 level. Either that, or I'm very jaded by the California market. In comparison, REIT shares can be bought and … Instead of purchasing a condo (or a house, for instance) and renting it out, are people actually dropping $400k at once into an REIT and hoping for the best? I see you have listed Vanguard ETFs, but what are the equivalent mutual funds? The "passive" income I make per month is about $3,600. VGSLX and VGRLX? It looks like VGRLX has front and back end loads, which I'm kind of salty about. Or pick and choose individual REITs if you want. In rental, you can have mortgage (leverage) at low cost and all risk and appreciation is yours. REIT investing allows for sharing in value appreciation and rental income without being involved in the hassle of actually buying, managing and selling property. Yeah, that all makes sense to me. A real estate investment trust, commonly called a REIT and pronounced "reet," provides an income without having to hire a property manager. I mentioned swapping over to a REIT ETF just because it seemed like a reasonable comparison in that they are a similar asset class (vs. comparing my rental property to Peruvian mining … Press question mark to learn the rest of the keyboard shortcuts. It's probably worth it though, unless you plan to scale your rental operations. That has to come at a cost, in the form of lower yields relative to owning your own property. In this post I take a look at the pros and cons of investing in REITs vs. rental properties as ways to generate income, along with why I tend to prefer one approach over the other. Buying Rental Property vs. REIT Investing: Tax Benefits Owning a rental property, as well as REIT investing, has the benefit of tax deductions. However, it requires significantly more effort and is a lot less liquid than a REIT investment. A rental property is an illiquid investment that requires an investor to tie up thousands or millions of dollars into a single property for a long period of time. I guess this works if you have $400k to begin with, though (and that would mean that unless you wanted 100% of your portfolio in a REIT, you would have a lot more other assets for diversification purposes). When you buy a reit, you know what exactly you are buying. REIT's are more convenient than rental properties. Not something an individual can replicate. Rental Property: Did I get the theory right? Owning rentals isn't passive income. I can tell you that rentals will make you rich if you know what you're doing. Someone please correct me if I'm wrong, but the biggest benefit I see to investing in real property vs REITs, is that it's easy to get a loan on it. When you buy a property it takes 1 month to close, and another 8000 atop the purchase price to get the transaction through. I've got 5 rental properties right now that are almost paid off. YMMV of course. So $18000-21600/year, assuming no significant expenses (I did not factor in HOA, etc). I think you should do more research and pick a few that you're interested in - such questions are probably only answered on a case by case basis. 1. A VNQ or O would yield lets say 4% on that $400k which is $16000, assuming that there was no positive or negative movement on the underlying stock. As long as you know those things, it seems like you still know exactly what you're buying :). REITs … Do the dividends tend to drop more than a rental property would? As someone that's planning on putting a couple thousand into O or VNQ very soon (i.e. Somehow I still have a hard time getting a sense of how much they differ in stability. There are companies that can help you with all of this, or you can possibly make more money by doing it all of it yourself. Just word of caution. They can scale it up/down as needed. If you disregard 2014's massive REIT gains, how much dividend income are you actually receiving (not in percentage)? Right now I have about 10% of my capital in rental properties. However, it requires significantly more effort and is a lot less liquid than a REIT … As an example, at RM1.19/unit, one could start to invest in YTL REIT at just RM119 (RM1.19 x 100 units).. When market crash, it affects everyone including your tenants and their jobs. Liquidity 2.Diversity 3.Exposure to properties that you couldn't normally invest in. Am I just as likely to see rental income go down as I am to see REIT dividends go down? My goal is 20 properties paid off and then hand the keys over to property management. IN individual rental, you realize the value fully when you sell it. However, the dividends generated by an REIT … Thanks for the input. Anyone have experience with both? Which one will make more money? The biggest benefit is they are less correlated with broad equity returns, so you get the effect I just described - they are sometimes up when other stuff is down. It's probably worth it though, unless you plan to scale your rental … In summary, the returns you can get on rental properties are typically much higher due to leverage and tax considerations, especially if you consider that you are building up equity in the rental property over time. Every asset value increases over time in line with inflation. Whereas with as little as $1,000, you can purchase units in a REIT that invests in a diversified portfolio of properties and even access classes of property not normally available to … VNQI if you want to go international. REITs … VNQ will get you there dirt cheap. The investor doesn’t have to advertise for tenants. At its core, FI/RE is about maximizing your savings rate (through less spending and/or higher income) to achieve FI and have the freedom to RE as fast as possible. Press J to jump to the feed. Alternatively, if one bought the $450k property and rented it out, at least the mortgage might be completely or close to paid for by the tenant (or roommate). Owning REITs is stupidly simple. The possibility of getting a higher return on your money if you chose properties wisely. #1 question when investing - Real Estate vs Reits: Which Investment is Better? I think the main thing I was wondering about was whether rental income was less correlated with the market than a REIT is. This is a great article which goes into a lot of depth on this topic: http://www.fifighter.com/finance/real-estate-thoughts/2014/04/reits-vs-rental-property-comparing-apples-to-oranges/. As such, property investors are increasingly looking to invest in the sector via other ways, such as through Real Estate Investment Trusts (REITs). REITs 2. The ability to avoid taking on a Mortgage. of course such yields may not last forever, mismanagement may lead to a cutting of the dividend or something... both of them, if you follow the graphs and look up their old files, were impacted by the housing crash of 08, VNQ, the vanguard REIT ETF, dropped as well during 08, REITS, in general, tend to be highly leveraged due to the need to heavily borrow to finance the acquisition of new properties, A person buying on their own likely has as much if not more leverage, REIT's don't need to borrow for new assets. REITS, in general, tend to be highly leveraged due to the need to heavily borrow to finance the acquisition of new properties - a market crash could heavily impact them. Diversification is another … Airbnb vs. long term rental: What is a traditional rental? As a REIT investor, you get to collect passive income without doing much at all. 2: Income earned . Therefore, when choosing an REIT vs. real estate property, investors may be better off pursuing both. I don't have any personal experience, since I've only gotten my shit together with my broader personal finances recently. When I've run the numbers, your return (after paying the mortgage) is considerably higher on the property. Rentals are a headache but a worthwhile headache in my opinion. If you have 20k free cash to invest, you can buy 20k of an REIT, or you can buy a 100k property (with mortgage). It depends on how many properties you have and how much $$$ you can invest. Owning rental real estate in the form of an REIT, or through direct ownership, offers various advantages. REITs it is hidden and you won't realize the value or you will realize partial value when REIT sells it. Press question mark to learn the rest of the keyboard shortcuts, [FIREd at 33 in 2013 in Raleigh NC][FI Blogger][married, 3 kids], http://www.fifighter.com/finance/real-estate-thoughts/2014/04/reits-vs-rental-property-comparing-apples-to-oranges/, http://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/. I've owned rentals for brief periods, made pretty good money, but it was a hassle. Only issue is that your need to have right location, that comes with your own research and experience. And it's less random than the stock market IMO. A large percentage of REIT … (1) Low Barrier of Entry (REIT) vs The Power of Leverage (Rental Property) REIT: With a minimum lot size of 100 units, almost anyone can afford to gain exposure in real estate by investing in REITs. A rental property is a small business, which means costs like a mortgage, maintenance or building improvements can reduce the amount of income subject to tax. REIT income is taxed like normal income....for a person in high tax bracket, this is costly. Investing In Property the Traditional Way Simply put, when you invest in physical properties, you’re hoping that you’ve found a great property that you can rent … From an income perspective are they more likely to behave like a rental property or a stock? Investing In A REIT, Part II. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. Having used rental properties for around 10 years, my vote is in favor rentals than REIT. My understanding is that a person's ability to get astronomical returns on their cash with rentals is to buy either an undervalued property (before someone else does) and/or purchase a property where rents are very high in comparison to property values. 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