When researching a real estate investment strategy, many investors are surprised by the myriad ways to enter the real estate investment market. Two of the most popular methods are REITS (Real Estate Investment Trust) and individual property investing. How does each of these strategies stack up against the other, and which will give you the best returns on your investment?
What Are REITs
A REIT is an investment strategy that allows investors to own a piece of real estate without investing in a property directly. The REIT can be linked to a privately or publicly held company that owns income producing property.
Rather than buying a property, the investor purchases shares in a REIT in a similar fashion to how stocks and mutual funds operate. Investing in a REIT mitigates some of the risk of property investing, but you may be missing out on the advantages of a direct property purchase.
REITs deliver an income through dividend distribution, with regulations requiring that most of the profit be distributed to investors. A REIT purchase is as straightforward as purchasing shares. If you go through a broker, it may be possible to buy fractions of shares rather than whole shares, which significantly lowers the barriers to entry.
You can purchase multiple REITs to diversify your property portfolios, such as REITs that focus on commercial property or family homes for rent. Perhaps the most appealing advantage of a REIT is that one does not need a great deal of investment expertise.
There are no tax advantages to investing in a REIT. Owning a physical property opens up opportunities for investors to reduce their tax liabilities, such as mortgage interest and depreciation. However, investors are taxed on their dividend income.
Purchasing shares in a REIT gives you very little control over your investment because you have no say in how the properties in a REIT are managed.
As with mutual funds, there may be expensive ‘management’ fees involved with a REIT that severely limit the profits.
Purchasing an Individual Property
Investing in an individual property includes purchasing a traditional investment like rental homes or commercial premises.
Owning a physical property will create an income stream through rent and provide investment growth through capital gains as property values rise over time. Unlike REITs, investing in individual properties can deliver significant financial advantages that will make it more worthwhile.
Most individual property investors consider the rental income the single most significant advantage. Rental income can grow as investors use strategies such as small down payments and cheap loans to leverage their investment and buy more properties that generate even more income streams.
There are tax advantages through deductions and benefits when you purchase property directly. Your taxable income is reduced by property management fees, depreciation, repairs, property taxes, and other operating expenses.
Property values appreciate over time. While they can experience downward fluctuations in the short term, the long-term median prices of properties historically increase in value. You can also increase a property’s value through renovations such as new appliances, extra parking space, or an additional room. Improvements can make a property more appealing and justify a rental increase.
How you invest your money will depend on your investment style, how much you want to be involved in the process, and how much risk you are willing to take on. REITs are easy and relatively safe but have very few options for maximising your investment. However, an individual property will increase in value over time while also delivering a regular monthly income that comes with significant tax advantages.
Lea and Lefry Amarille are real estate investors. They have been actively involved in the GTA and Durham Regio for a number of years. Their mission is to provide great quality homes for tenants, while at the same time providing an above-average return on investment (R.O.I) for their investor partners and themselves. It is truly a win-win-win way of investing!
Lea and Lefry offer their investor partners hands-free investment opportunities. If you are interested to learn how to earn an above-average return on your investment, backed by a solid asset, and without the hassle of being a landlord, please contact Lea and Lefry.
For more information about Lea and Lefry and their investment program,
please call (416) 827-0586 or visit https://investorleaandlef.com/