Key factors to consider
If diversification is one of your prime reasons for investing in real estate, then by all means Real Estate Investment Trusts (REITs) are for you. They’re traded as stocks, and most REITs invest specifically in some niche of the real estate market. Some specialize in office space, some retail malls. Some are dedicated to apartment buildings. Others still base their holdings in more specialized commercial space – warehouses, factories and manufacturing buildings. And then there are some that diversify over all forms of property investment niches all over the world.
Whatever you choose, good investment property advice is that it’s the easiest way to enter the real estate world. You can buy and sell your shares on line, the per-share costs are reasonable, and like stocks, you can get in and out quickly, so liquidity is very high.
Lack of control
Of course, you won’t have any control over the exact properties that are bought and sold, nor any say in the expenditure or running of the properties either. And you won’t have the ability to leverage any of the real estate holdings, as you would when you own your own pieces of individual investment properties.
But the risk is very low when investing in real estate using REITs. Another good piece of investment property advice is that it doesn’t take much cash to get started. And you can diversify over a number of property types in the process. Of course, the liquidity is one of the greatest draws of REITs relative to actual property ownership.
The leverage game
But if you like to take control of your own projects, have the fortitude to see your projects through to completion, and like to put your imprimatur on your own properties, then REITs would probably not be for you. Rather, you should then be focusing on saving up for down payments on your own investment properties. That way, you can also utilize the leverage inherent in owning your own real estate when you utilize mortgage money to help grow your portfolio. And of course, the tax advantages of self-ownership can greatly outweigh using REITs as a form of investment property purchasing.
Diversification as a chief factor
Diversification of your real estate dollars is one of the main facets of investing in REITs. When you purchase one property yourself, you’re in effect putting all your nest eggs in one basket. By allocating dollars to REITS, you get to even out the investment over many properties in many potential real estate niche markets. The safety will be much greater.
That said, you really won’t learn much about the nitty gritty of the real estate market by investing in REITs. To truly understand property investing, and my best investment property advice, is that you’ll need to own property yourself in order to understand and truly learn about the intricacies, fluctuations and vagaries of the real estate market. It’s a life lesson you can’t possibly learn by investing in a REIT. Just be sure to cater your investment style to each option that suits your personality.
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