Spark Global Limited Reports:
Do you want to invest in real estate but not sure where to go? While there are several ways to enhance your position in real estate, in this article we’ll compare two popular options: Real estate investment trusts (REITs) or real estate syndicates?
Reits function like mutual fund companies for the real estate market, allowing you to invest in real estate without owning any of it. Direct real estate syndicates, on the other hand, involve several investors pooling resources to invest in real estate that they jointly own. Each portfolio diversification strategy has its own unique advantages and disadvantages. Let’s take a closer look at these forms of investment.
Investing in real estate investment trusts (REITs)
Similar to mutual funds, reits are companies that pool the money of many investors to own, manage or finance real estate assets. These companies allow individual investors to profit from real estate without having to own, operate or pay for any particular property themselves. At the time of this writing, the SECURITIES and Exchange Commission (SEC) has endorsed 225 U.S. REIts currently trading on major stock exchanges.
The benefits attached to investing in reIts
Profit without owning a home: This is probably the most attractive reason for investors to choose REits, since investors can earn dividends from real estate but don’t have to go through the hassle of owning, operating or financing any property.
Low-cost entry to market :REITs reduce the entry requirements for investing in the real estate market. If you want to invest directly in real estate, you need to have a lot of money. But with reits, you can start your real estate investment journey for as little as $500. This not only reduces entry points, but also reduces investment risk, and new investors can use this method to diversify their portfolios and gain experience at the same time.
High dividends: You can expect at least 90 percent of taxable income to be paid to shareholders — an amount reits are required to pay by law. In most cases, many shareholders also receive a dividend yield of 5 per cent (and sometimes more).
Growth potential: As long as the underlying assets increase in value, so does your capital.
Liquidity: You can easily buy and sell your REIT shares on several exchanges. That means your money doesn’t have to be tied up in an asset for long.
Disadvantages of reIts
Lack of tax advantage: Most REits attract high tax rates because they are not considered “eligible” dividends.
It depends on interest rate fluctuations: In general, when interest rates rise, reIT prices fall, and vice versa.
Lack of diversity: Most individual REits focus on a specific property type, such as hotels, malls, etc. This puts you at risk of situations that could affect the values of these attributes. For example, if real estate investment trusts (REits) are concentrated in offices, and if companies shut down quarantine due to COVID-19, they will be severely affected.
Investment in Direct Property (Syndicate)
Real estate co-investments are direct investments in real estate that involve several investors pooling money, like a real estate investment trust. One difference is that syndicates are not open to public investment after they create trusts or funds. Another difference is that the profit earned on the property you invest in is largely dependent on the outcome of income-generating activities on the property you buy. A syndicate also has a life cycle, during which your money is tied up in the business. For example, a group of investors might buy apartments in Manhattan and renovate them. After the appreciation, they may sell the Manhattan apartments. When those shares are sold, the syndicate is wound up and the capital returns distributed to shareholders.
article links：Real estate investment options :REIT vs Direct Property
Reprint indicated source：Spark Global Limited information