[USER]

Do you have something for me?

[Ross]

Owning the real estate directly is obviously better, financially, but not everyone wants to run a real estate investment business. REITs and similar products enable you to passively invest in real estate, but the returns will be similar to stock returns.

It’s the classic risk/reward trade off.

[Brad]

My REITs related securities have tanked in value before COVID so I’m stuck collecting a fat dividend to try and bridge the gap, but it will be awhile.

That being said, no individual employee from one of the companies I owned a share of has ever called me on a holiday when I’m out of town on vacation complaining about a leaking toilet.

Don’t miss: Pretty new to investing and just want to learn how to make better financial choices for myself and the future

[Yujin]

I love REITs, solid investment vehicle if you purchase solid companies. Yes, they are discounted now, all I see are deals.

O, AVB, PLD, AMT to name a few.

[Sarah]

I feel like this is more of a question of what you prefer and what your personal situation is.

Do you like being a landlord? Are the properties in your area or the area you are considering good rental options regarding price and rent? Do you have enough for a down payment? Do you like maintaining properties? Are you comfortable with market volatility? Would you be investing in reits in a tax advantaged account (dividends equal taxes in a taxable account)?

I think both a good investment options, but whether one is better really depends on you and your situation.

[Robert]

At retirement, I sold all my rentals incrementally and rolled the proceeds into REITs. No regrets. I no longer needed the rental expenses to offset my ample salary.

[Sarah]

Very different as managing rentals is a hands on business where the risk must be managed and run day to day, where as a fund is a passive option and others do the managing.

[Ramzi]

Because Reits have gone down in price 20 to 30% they are relatively better value, but remain under pressure because of rising interest rates. The tax advantages of direct real estate is due to the ability to deduct depreciation and defer taxes.

Once the property is sold, depreciation recapture is taxed as ordinary income, thus voiding previous tax benefits.

Reits are probably better for the passive investor who already has made money, direct real estate can be better if one is handy, and can create value from the property.

Explore these too: How can you lose money with rental properties?

[Daniel]

Think of REITs as a way to get some real estate exposure in your investment portfolio without doing the heavy lifting. You’re paying someone else to do the management, and take fees on top of that.

I think it’s fine in general, but would not have as an outsized part of your investment strategy unless you’ve done significant analysis and believe that the real estate market is undervalued or that a particular REIT has an under-loved strategy.

[Author]

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