Actual real estate vs REIT (Real Estate Investment Trust)

[Jeff G.]

RE investors usually put down what 10-25% and finance the rest when purchasing real estate.

Why not do the same in a REIT (or two)? There are some paying dividends of 10%+ right now.

Do you make a higher % than that on your actual real estate investments?

I'm asking because I'm having a hard time finding positive cash flow deals in my area. Well positive enough to surpass that 10% mark anyway. And I feel like, "Dang, why not just put the down payment cash in a REIT, sit back and relax?" i.e. Should I be willing to take a risk on a property, deal with tenants, spend time & money on repairs & maintenance & evictions, for 0%, 1% or 2% over a REIT? What am I missing?

Thanks, y'all ...

[Adam Hershman]

Hey Jeff,

I think you'll find most people here on BP are either RE professionals or semi-pro hobbyists so the attitude is that they would rather bet on themselves and the idea that they can reduce expenses via sweat equity etc rather than bet on fund managers. The other reason people are wary of REITs is a whole lot of investors got hit pretty hard 3-5- years ago when unlisted REITS were getting hammered due to a poor RE market, and were trying to maintain plans for going public. If you want some examples look at Chambers Street Group (CSG i think is the ticker for the new PT company) or Retail Properties of America (RPAI) who had a very rocky transition from being Inland Western to publicly traded RPAI.

Essentially its the same pitch I make every day for Provident Trust Group as a self-directed custodian it boils down to this:

Would you rather pay a business major 1% of your account value a year to make recommendations that you don't understand for securities and products you have no interest in and see a 5-8% return, or would you rather invest the time into making your funds work doing something you're personally experienced in or familiar with and think you can make a better return?

There is a huge explosion in LALTS or liquid alternative assets, essentially ETFs and MFs that have a portfolio of alternatives so many people who had no way to invest in alternative assets, other than self directing and actually buying the hard asset, now have a securitized asset that they can invest in. I don't want to be a doomsayer or negative nancy or anything but there will be a negative connotation to the comparison I'm about to draw, liquid alts are in a very similar place now to what CMOs were in the early-mid 80s, wall street has figured out a way to securitize these assets. That makes investors happy (perceived reduction in risk through diversification while still investing in alternative assets) and it makes wall street happy (claw back some money from the self-directed true alternative asset outflows, more products = broader audience = more clients = more money)

Hopefully that makes sense. Sorry if that got a little rambley in the middle there.