@David Ma
Thank you for starting this thread; I was about to start one just like it, but figured I'd run a quick search to see if anything else was out there first. I'm struggling with the same thing. Some of the buy-and-hold investors on here are picking up AWESOME deals on rental property, where their returns will almost certainly outperform those of a REIT. Unfortunately, I don't seem to be able to find those deals in my market.
I don't have the time/desire for extensive repairs, and I'd have to hire it all out anyway, so I'd end up paying top dollar. I would need something turnkey, therefore, I'd likely pay quite a bit more for the property. After all the normal expenses, and I do include property management because I don't necessarily want to self-manage, my returns are nothing more than average, at best.
I can think of two main reasons that I would want to own real property versus a REIT:
1.) Tax benefits - I would likely receive much more in terms of tax benefits than I otherwise would without investing in real property. I'm currently in a 28% federal bracket. Taxes will likely go up. My W-2 income will likely continue going up. I could definitely use the tax break.
2.) Leverage - As many have already said, I can put 20% down and control 100% of a property. That's pretty incredible.
I can think of several reasons why I'd want to invest in a REIT instead:
1.) Truly Passive - No tenants, termites, and toilets to deal with. No destroyed property to repair. No maintenance bills to pay. No property management company to oversee.
2.) Decent Returns - Although dividend yields can change at any time, the REITs I've been looking at recently seem to hover around 7% yield. While that's not fantastic by any means, it's just the dividend yield; there's also potential capital appreciation (which, many on here would probably say is the same as speculation on appreciation of real property).
3.) Exposure to Certain Types of Property - As someone has already stated, you can invest in certain types of real estate through certain REITs that you may not be able to afford to invest in directly. Student housing and NNN were mentioned already. There's also retail, office buildings, etc.
4.) Diversification of Risk - Many will argue that they have more control with direct real estate investing locally. There's definitely truth to that, however, there are also factors outside of one's control. By investing in a REIT, I get diversification over numerous properties instead of just one.
Another obvious answer is that I can, and likely will, invest in both. REITs for the reasons stated above and real property for the tax benefits and leverage. Is there anyone that believes it's all or nothing? I know many will lean towards real property and NOT REITs, but taking a look at my skill set and personality type and comparing myself to the 50+ guest investors on the Podcasts, there are just certain things I do not want to deal with. I feel like a REIT gives me a way to invest in real estate without many of the typical headaches. I'm okay sacrificing a little return to have something that's totally hands-off and passive.
Any input, advice, and opinions are appreciated as I continue to try to formulate my thoughts. Thanks in advance, everyone!
