Why I Continue to Buy REITs Instead of Rental Properties

[Greg Scott]

Since BP has this new funky advertisement in the forums that does not allow you to reply, (link above) I'll reply using the same title in hopes to generate some conversation. (Why don't they allow us to post a counter-argument????)

Data over the last century shoes REITs have a correlation to stock market returns.  Congratulations you are correlated and invested in a highly taxed asset class that went up recently.  Yay for you!

I've bought apartment complexes from REITs. In my experience, REITs are terrible at managing their property.  I would NEVER choose similar portfolio of REITs over those managed by experienced investors.  Moreover, you have much higher overhead than most experienced investors.

In a REIT you are missing out on all the tax benefits. You have no write-offs. Meanwhile, my investors that bought a property from a REIT had a 60% paper loss from just purchasing the property. They got cash in their pocket from distributions, and a huge tax write-off that you have no way of getting.

REIT returns are not comparable to direct investing! Is BP getting paid by REITs? This is a huge disservice to the real estate investing community to post this drivel!

[Basit Siddiqi]

I like REITS because of their liquidity. You can sell at anytime and get your cash(just incase you need it). They also require less time compared to owning a rental outright.

The reasons that I don't like REIT's as you mentioned in your post is that they are not efficient from a tax standpoint.
From my understanding, REITS pay ordinary dividends and not qualified dividends. While you may get a 199A deduction, you are paying a high tax rate.

If we are talking about REIT's listed on an exchange, there are additional overhead costs as you mentioned - You have to get audited financial statements and also comply with certain SEC laws.