Many investors think that real estate is a good way to diversify their investments and make easy money. With the challenges of active property management, it’s easier than ever to avoid direct responsibility. With this, Residential Equity Real Estate Investment Trusts (REITS) are becoming more and more popular as they let people get into the market without having to deal with the complexities of property maintenance or lease agreements.
Are you a foreign investor looking for an investment opportunity in Texas or a real estate development firm who wants to optimize their real estate holdings? If so, you are at the right place!
In this article, we will discuss the pros and cons of REITs with an aim to assist you in making an informed decision. So, without wasting any more time let’s jump into the topic and know the reason behind REITs’ popularity.
Benefits of Equity REITs:
- Diversification: By owning shares over multiple properties spread across different regions, individual real estate investors can minimize inherent risk when investing in a particular asset.
- Passive Income: As long as shareholders receive rental payments (regardless of regular management activities) Equity REITS are useful. Here, shareholders can provide consistent and predictable streams of passive income.
- Professional Management: Equity REITs are run by experienced teams that focus on property acquisition, management, and tenant relations. This means that individual real estate investors don’t have to deal with day-to-day tasks like maintenance, repairs, or working with tenants.
- Liquidity: Liquidity is a key advantage of equity REITs since they trade like traditional stock exchanges. Many investors equate this function to adding an extra layer of investment considerations to traders. However, it mainly delivers easy access to funds when needed via trading buy/sell orders.
- Accessibility: Residential Equity Real Estate Investment Trusts provides entry for smaller financial contributors in challenging asset categories thereby providing potential property ownership options that would have been otherwise unavailable.
Drawbacks of Equity REITs:
- Market Volatility: Due to changes in interest rates and market swings, economic bust cycles may affect price structures, which can lead to profit losses for several shares and make equity REITs more volatile than other instruments. When the market is unstable, REIT shares can lose a lot of value, which could affect their total returns.
- Limited Control: When investing in Equity REITs keep in mind that you have limited control over property selection, management decisions, and operational strategies. Your real estate investment success will largely depend on the expertise and decisions made by the REIT management team, which may not always align with your personal real estate investment goals.
Additionally, even though Equity REITs offer tax advantages such as pass-through taxation, there are specific tax rules and regulations you need to be aware of. Compared to direct real estate investments, Equity REITs may offer lower potential returns due to management fees, operational costs, and the need to distribute a significant portion of rental income as dividends to shareholders.
Therefore, evaluating historical performance and expected returns is crucial before investing.
If you’re considering investing in Equity REITs, consider your risk tolerance and investment objectives. These investments can be suitable for those seeking a balanced approach between risk and returns as they offer moderate risk compared to direct real estate investments.
However, for real estate investment companies or foreign investors looking for regular income and prefer a passive investment approach that provides consistent rental income, Equity REITs could be ideal for you.
On the other hand, if capital appreciation is your priority over current income requirements or if controlling investment decisions is essential for you personally, don’t overlook these factors when making your decision about whether Equity REITs align with your financial goals or not.
Having grasped the advantages and disadvantages of Equity REITs, it’s now crucial to explore other REIT options. Our upcoming article in the REITs series will provide comprehensive insights into Mortgage-Backed REITs and Hybrid REITs, shedding light on their intricacies and demonstrating how they can fortify your real estate investment portfolio. Stay tuned for this valuable information!
Still confused about investing in Equity REITs? Connect with our portfolio team to unlock the potential of this highly profitable market. For further inquiries or customized real estate investment solutions, schedule a call with our experts HERE.
LEARN TO INVEST WITH US.
We accept queries from accredited domestic and foreign investors seeking single and small multifamily investment opportunities.
