Data proves REITs are better than buying real estate?

[Maggie Wray]

This recent article in Forbes argues that Data proves REITs are better than buying real estate: https://www.forbes.com/sites/marcprosser/2017/07/1...

I've been following Bigger Pockets and planning to buy my first rental property sometime this year...but this article made me wonder if I should be rethinking that decision, and investing in REITs instead!

So, I'd love to hear what Bigger Pockets members with more firsthand experience with real estate think about this article.

1. Are they right about this? Do you think the arguments in this article are valid, and REIT's really are a statistically better than buying real estate directly?
2. OR are there other counter-arguments this article was ignoring, that make purchasing real estate directly a better investment after all?
   

[Adam M.]

REIT is simply a tax designation for a company. They can achieve it by following certain guidelines. The main advantage is that the company itself pays no taxes but they must pay out 90% of income to the shareholders, thus huge dividend yields. Here are the guidelines if you care https://www.sec.gov/fast-answers/answersreitshtm.h...

If they are publicly traded you can liquidate your position in a day. It would take longer if you were a much larger investor but doubtful anyone on BP is of that size. You can invest in different asset classes, MF, Mortgage, industrial, diversified, etc. They do have equity upside on top of solid dividends. I personally like mortgage REITs. They buy MSB and other loan papers so they have a really low overhead. The ones I'm in yield 10% dividends plus equity upside. Downside is that they are usually really levered up to get that high of a return which makes them susceptible to rising interest rates.

I own ARI and ABR. Both have a really solid track record. You can also get ones that pay out monthly, every other month, quarterly so you can have a steady CF. You would need to buy them in a taxable investment account to get what I think is the main advantage of real estate which is cash today. Obviously this brings up tax issues. Benefit of rentals is depreciation and ability to write other expenses off which you couldn't do buying a REIT.

My personal strategy is to do a build up rental incomes and leverage that into REITs in a taxable account which you can acquire faster and take advantage of compounding interest.