Differences Between the Real Estate Investment and REIT Investment

Real estate and REIT investments are two types of investments that turned to be widely popular these days. Obviously, those who consider more of a stock investment, they usually go for REIT investment but real estate investment is also something interesting, also considering all opportunities that crisis has offered. That’s why when you have some resources, you should always consider both depending on your expertise, on your knowledge, on what’s the type and your preferences are.

Let’s move on with step-by-step comparison of both types of investment. I will just cover most popular questions for my students, for my mentees. Those are most likely things that will help you to make the decision. If we consider the money side of the question which is super important, the first thing that comes to my mind is like yeah but for real estate investment you need a lot of money. It’s not necessarily true because you may invest with various types of investors, cloud investing, you can raise funds from investors, you can raise money from the bank, let’s say you can take a loan, whatever you consider to be a proper way of investing.

The problem is that as soon as you go for this type of investment you’re like yeah you definitely have a little bit higher risks and you have to know what you are investing in. But it’s not really that you need a lot of money because during my coaching I really show a lot of opportunities for various countries, how you can invest without really involving a lot of your funds. But if you are considering a very traditional type of investment, you are either investing a lot of money into the real estate or you are going for the bank loan. This is a very classic way.

If you are an investor, you not always really want to put all your money into the real estate, so in most cases even big investors raise money from the banks, they get money from the loans, from various types of money sourcing procedures but they don’t really invest their money. That’s in most cases. So, for the REITs, first of all you don’t really need that big amount because you can start investing with a teeny-tiny money. Usually the entry in Europe is somewhere starting from several thousand euro or several thousand dollars. It’s about the same in the US, you have various REITs available. The next coming up problem is diversification because every portfolio should be properly diversified. And if it’s diversified properly, it means you manage your risks. So, if you have limited amount of funds and it’s your first investment I would really think twice before I entry the real estate investment because it’s kind of not that easy choice unless you really know the market.

On the other hand, you have the REIT which is already properly diversified, basically the company the trust, they purchase a lot of real estates and in that way, they just diversify. Of course, the diversification is a little bit limited because REITs usually invest in one type of investment which is either housing or maybe commercial estates. If it’s commercial estates, they also try to be very niche, for example logistic estates which is also under some kind of risk zone. In that case you should also think whether it’s a proper way investing, obviously before you invest.

Real Estate Investment Trust

If you are going for the REIT and you kind of know the market, you want properly diversified estate portfolio, then you just check what do they invest in. It’s usually published on their website or you can just contact them and ask hey, guys, what is the investment market that you enter, what you invest in, what are the types of portfolio and how your portfolio is diversified. Real estate investment trusts usually offer you some kind of semi-guaranteed rates, which is also kind of interesting. For those who really have no experience I consider real estate investment trusts to be somewhere on a descent level of investment to test, to see how it works, to invest maybe in several real estate investment trusts and in the meantime to learn about the real estate investment itself.  This one is also considered to be a very nice and profitable, of course depending on the region. I don’t know guys where you are from, I cannot be way too specific. I am just talking about more international investment and international rules for this type of investment.

Let’s move on to the entry and exit. Obviously, it’s so-called liquidity in the real estate but in REITs it’s not freely liquidity because you can exit in most cases in define period of time. Let’s start from REITs. First of all, from a legal point of view, when we enter we have to know how you can enter, what’s the minimum amount of investment, when you can exit their real estate investment trusts investment, what is the commission that you pay for it, what are the dividends and when you get them, is it monthly, quarterly or just annual basis. Those things are very depended on the trusts, on the country and their legal side of the REIT where they are registered at. You can also be restricted as an entity or as an individual when investing in REITs, sometimes they do not accept money from specific region, it happens. Before entering any type of investment just make sure you check all the necessary sides of this type of investment.

And for the real estate type of investment, obviously you should consider location, the market and if you don’t know the market well there are plenty of opportunities but if it’s your first investment, guys, I remind you that you should be very cautious about this type of investment and obviously selling the stocks and selling the real estate are two different things. I hope I don’t have to talk much on that. But in most cases, you lose much less money when investing in different types of stocks, then investing in real estate. If you have to sell it very fast, if anything happens and obviously when you invest in the wrong type of property or even if you invested in the correct type of property based on the market situation and then the situation changes like we had during pandemic. Then, you know all those things should be considered and again I remind you that maybe investing in diversified portfolio, if it’s your first investment, if you only want to invest in one real estate, then with this mind you can get probably much better results with your first investment when investing in REITs.

I personally like real estate investment type and I know a lot about it but on the other hand, when you are just starting, well REIT is somewhere on the safe side. Then we can also look at the active side of investment and passive side of investment. We always think that every type of investment is a passive income but passiveness is not necessarily passive type of investment where you really have to take any actions after you are acquired this asset. So, for REIT you have those portfolio managers, those are professionals, they know what they do in most cases and they invest in really proper way and they diversify properly. On the other hand, with REITs you have no headache. So, you basically invest and you do not care about anything else.

Real Estate Investment

But when going for the real estate investment, then it’s more of an active type of investment unless you have a manager because if you invest in small types of estates and then you want to manage them personally. That’s definitely a very active type of investment because you have to do the payouts, you have to collect the money, you have to make all those things that not necessarily are passive. You basically have to be more of an active person and more of an active investor.

On the profit side, let’s look at both and in my opinion real estate investment you are likely if you know the market very well and if you are not limited to only one market you are very likely to get a lot much higher returns but if you are limited to one country, if you have limited amount of resources not only about financial resources but also knowledge, context, all those people, the network, that can offer you much better profitable projects, then on average, if we are speaking about very basic type of investment, then probably REITs would be about the same with real estate. Again, depending on the market you should do your check-up. In my opinion, well definitely where you don’t have all this big structure and even diversified properly with more risks you can get a little bit more money but again it’s up to you, guys.

We’ve talked about the knowledge about the real estate investment and which type of investment you should know more. Is it REIT or real estate investment, typical real estate investment? We’ve covered the liquidity, the passiveness and activeness of investment. We’ve covered profits and all the things basically you should consider, obviously diversification and other things that you should keep in mind when investing or choosing the type of investment, including entry, exit, the limited possibilities and opportunities for the foreign investors. Same with real estate, you can be restricted to invest in specific countries because the law allows to invest for the companies or not for individuals, for example. And there are many other things on the legal side of the processes but you know it’s about and about your personal preferences if you have a little bit higher risk tolerance and if you really know the market well maybe consider the real estate investing something you should do, but again it depends on the personal preferences and on what is your knowledge at the moment. Definitely REIT is a very great choice for you if you are just starting with the real estate investment.

Source Olga Fleming


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