Real Estate vs REITs
Updated: Oct 16, 2019
I love anything that has to do with Real Estate. But I understand that a lot of my readers do not like hard work that comes with managing Real Estate. So what should they do? Well, enter REITs!
This is Real Estate Investment Trust. It is a company that owns income producing real estate such residential, commercial or mix of both. Usually, these companies pay monthly and quarterly dividends. These are great because you can choose to reinvest your dividends back into REITs. So it grows. Or if you invest hefty amount of money in REITs, let's say 1 million, you can pretty much retire and do nothing. REITs also suffer from market ups and downs but they are not as volatile as other stocks. I have been observing REITs in my demo stocks account and I noticed they are doing well. Overall, REITs tend to do better than many S&P 500 companies in long term, even after management fee. Some examples of REITs are BMO ZRE etf, XRE etf, VRE or Vanguard etf.
Physical Real Estate
This is where you get to be your own boss and dictate as you wish. Work is involved but you get to choose whatever you wish as long it is within regulations. This is debt financing and the collateral is property. So the banks feel secure to lend you money if you can prove yourself. The biggest advantage of physical real estate over REITs is leverage. You are putting only 20% down to leverage more. In REITs, you don't do any work except reading, analyzing and following up with market. I have passive experience in handling and understanding the business of physical real estate. As long you are willing to put up with some operational work and creating a system in the beginning, in the long run everything will become a lot simpler to handle.
Anyways, I hope this post has provided some value and knowledge to you. I am more than happy to answer any question you may have to best of my ability. If I do not know something, I will let you know and I will do my best to find out the answer for you.