Should I invest in REIT for now???????

Question

Hi All,

I'm in the process of repairing my credit, and I live and work in an area with very little RE investment opportunities. I would like to invest in NW Indiana and Chicago areas which I'm familiar with, but I don't know any investors there. I am also very skeptical of investing my hard earned cash with a complete stranger, having been a victim of investment scam. Should i just invest my cash in REIT for now until my credit is back on track? Any advice would be greatly appreciated. THANKS ALL!!!!!!!

Account Closed · Answer

I think many people are jumping the gun talking about turnkey properties. If you are repairing your credit I think it's only fair to ask how many months of emergency funds you have in cash. The norm is 6 months of reserves but you may want to be higher as any type of lending may be harder for you to come by.

If after all that you still have enough for a turnkey, then invest TK.

George Sleweon · Answer

Thanks a lot Larry for the post and blog. I will look carefully into it. I am new to these different types of investments, and trying to learn as much as I can. Though I want to be conservative with my approach, I don't want to stay too long on the sideline. Any additional info you can prove will be greatly appreciated. Thanks again for your post.

Larry Fried · Answer

@George Sleweon Hi and welcome to BP!  If you are unable to leverage at this point due to your credit score I think the answer to your question depends on how much cash you have to work with - ie: can you buy with cash and potentially refinance the property later to get some or even all of your cash out when your credit returns. If you are looking for a passive investment that gets you in the game at relatively low entry points there are alternative investments to REITs.  For example I have now made a couple of investments with a company the sells interests in diversified portfolios of 10 rental properties each.  The entry is just $10k, and the Managers go own the investment with me, so their interests are aligned.  Anyway I blogged about my investment a couple of weeks ago and you can read it here

BTW, I also invest in NW Indiana.

Frank S. · Answer

You missed the point.   There is no such thing as solid.

Christian Costa · Answer

like I said you need to invest in a SOLID REIT. The same way there are bad stocks there are bad REITS

Frank S. · Answer

Be very careful.  mReits use over-leverage to pay high returns.

There are no shortcuts to accumulate wealth.  The higher the return, the higher the exposure.

Here is an interesting example:  MORL

http://dividendsandincomedaily.com/2012/10/25/morl...

Christian Costa · Answer

REITs are a pretty solid investment. Most REITs offer monthly dividends, which you further maximize your return by reinvesting the dividends. You can as well take the dividends as a passive income producing vehicle. On average I have seen REITs offer dividends at 5-20% yield. With a low per share price on most REITs I've seen, it is a great investment and does not require a lot of cash up front. You could buy a share of a solid REIT for about $7.

Frank S. · Answer

Hi, good job at taking control of your credit.

Why, REITs?

If you are interested in adding real estate flavor to your investments?  If so, why, if I may ask?

Are you aware of the tax inefficiencies associated with REITs?

Have you considered low cost passively managed index funds?

REIT Index

https://personal.vanguard.com/us/funds/snapshot?Fu...

VGSIX

E.R. 0.26%

10 year return after taxes:  4.66

Total Stock Market

VTSMX

https://personal.vanguard.com/us/funds/snapshot?Fu...

E.R. 0.17%

10 year return after taxes:  5.59%

https://blog.wealthfront.com/tax-efficient-reits-i...

REITs (Real Estate Investment Trusts) are less effective than other high dividend-paying stocks in a taxable portfolio because dividends represent a large portion of returns of the real estate asset class, and REIT dividends are taxed at significantly higher rates than other stock dividends. In this case, tax inefficiency trumps diversification.[2]

If you want higher returns than banks use a buy and hold approach with stocks. Don't buy anything you would need in 5-10 years.  Consider bonds.

Consider prepaid cards at 6% APY.

Best of luck,

David Faulkner · Answer

REITs could work if you want completely passive and do not wish to get into the active side of Real Estate Investment ... you could make a decent return, but it won't teach you much about Real Estate Investing. It does sound like you do eventually want to get into the active side, though (I'd include buyy-and-hold in the active side). So, I think if I were in your shoes, I'd save up money to invest, work on repairing your credit, and most importantly identify and fix the root cause of what got you into bad credit in the first place (you'll need to be real honest with yourself for this). Once you've mastered your personal finances, and as result money to invest starts appearing in your bank account, then you can get into investing in real estate ... those lessons in personal finance will come in just as handy as the investment capital.

In the meantime, you could also educate yourself here, at the library, with any REI meetups that may be near you (nearest big city?), find a mentor if you can, and study your local market. I'm always skeptical when somebody tells me there are no investment opportunities where they live ... there are opportunities everywhere, I believe you just need to open your mind and train your eyes to see them. I would NOT venture too far from home on your real estate investments; relocate to pursue them if you must, but do NOT try to invest remotely as a new investor. Good luck!

Should I invest in REIT for now???????

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