Is 2018 Your Year to Invest in Real Estate or REITs?

When most think of investment vehicles for growing wealth, stocks are usually the first thing that comes to mind. While stocks should certainly be part of your portfolio, investing in real estate or REITs can be a great method for diversification.

If you’re wondering whether 2018 is your year to invest in real estate or REITs, here’s what you need to know.


Purchasing Real Estate as an Investment

Real estate is one of the oldest investment vehicles out there. After all, when you buy physical property, and that almost always maintains some level of value.

But simply owning property isn’t your only option. Sure, you can rely on appreciation to help build wealth, but you can take it further too.

For example, you can generate cash flow by securing a renter. Effectively, you’ll get a payment every month in exchange for allowing someone else to use the property.

However, becoming a landlord can be a complex venture. You have to deal with laws and regulations governing the leases, and may have to handle difficult tenants. Building repairs are also your responsibility. But, it can still be a worthy venture, if you are up to the task.

Additionally, there can be a high financial barrier to investing in real estate. You do have to actually purchase the properties, and some households may not be able to shoulder that expense.

Investing in Real Estate Investment Trusts

Alternatively, you can also explore real estate investment trusts, or REITs. These financial vehicles act similar to stocks or mutual funds, allowing you to buy shares in an REIT. Plus, they appear on exchanges, giving them a place to be bought and sold.

There are three primary forms of REITs: Equity, Mortgage, and Hybrid.

Equity REITs are trusts that own physical properties, like office buildings and warehouses. In most cases, rent payments assist with generating income on these investments.

Mortgage REITs invest in mortgages on public properties, either lending the funds or purchasing existing loans or securities. The interest payments on the loan provide a source of income on these REITs.

Hybrid REITs are a blend of the previous two. This allows you to enjoy a bit of both worlds without having to invest separately.

Should I Invest in Real Estate or REITs?

If you are looking to diversify your portfolio, real estate and REIT investments can be a suitable option. If you have the ability to purchase additional properties, you’ll need to examine your target market to determine if now is the time to buy. But, if you don’t, an REIT can let you get a taste or real estate without the upfront expense.

There’s also nothing that says you can’t do both, so don’t treat it as an either-or proposition. If you want to dive into real estate and REITs, then why not give them a try? Then you can experience a little of everything.

Have you invested in real estate or REITs? Tell us about it in the comments section below!

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Posted in: Personal Finance, Real Estate

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