Are REITs Right For You?
If you're looking to invest in real estate and have been looking at individual properties, you have to be prepared to take on a lot of responsibility. Even if you leave the day-to-day management of the property to a management company, you're still responsible for overall business. However, you may want to look at a real estate investment trust (REIT). This allows you to invest in real estate while not having to worry about any management issues whatsoever. Here's a look at the good and bad of REITs.
Someone Else Does the Work
As mentioned, you don't have to do anything to keep the investment properties in good shape. The REIT management company takes care of that and simply sends you the money it owes you. This lets you invest in real estate without the time-consuming tasks you would have to deal with if a regular management company were constantly asking for your approval to fix, upgrade, or replace parts of the property.
Not Tied to Stock Market Performance
While REITs are an investment, they are not necessarily tied to the stock market in terms of performance. In other words, the stock market can tank, and the REIT can still do quite well because its success depends on the properties having tenants. As long as the tenants are paying their rent, and the properties are occupied, the REIT should do well.
Have Choice of Investment Types
If you buy into an REIT, you'll have a choice of types of REITs. In other words, you won't be limited to just those REITs that buy apartment complexes. You can choose from REITs that invest in commercial properties, apartments, even groups of single-family homes. So if there's a particular type of property that interests you, you can find a REIT that invests in it.
Influenced by Rental Market and Economy
A drawback is that if the rental market goes bust, then the REIT can be in trouble. If no one is renting properties, or if the renters can barely keep up with rent payments, that affects your payout. And remember, the rental market can be bad even if the overall economy is great and the stock market is doing well as a whole.
Your Tax Situation Can Vary
How you handle taxes regarding the REIT varies. You may have to pay capital gains tax, or you may have the income taxed as personal income. This means that you can't jump into REIT investing without checking each REIT with your accountant to verify how you would deal with the taxes.
If you want to know more about REITs, talk to a real estate agent with experience in multifamily and commercial sales. Many REITs focus on those markets, and the real estate agents who handle those kinds of sales can show you what the properties are like in general. To learn more, contact a company like Realty Executives.