REIT is No Substitute for a REAL Property

Logic holds that investors should be diversified… but diversity inside the same market? Let’s get REAL… as in Real Property.

When looking to diversify away from “market” driven securities, investors will often turn to a REIT (Real Estate Investment Trust) with the hopes that this will provide similar returns and benefits as those available from an actual, physical, REAL property… Not so fast.

REIT’s are certainly a reasonable investment option and they come in two forms : traded and non-traded. The traded REITs are very similar to a dividend paying stock with the dividends issued on a 1099-DIV. Non-traded REITs are harder to access and they come with surrender fees if not held for some extended period of time… these provide depreciation benefits but they miss out on the ability to do a 1031 exchange.

So let’s get REAL… Real property provides similar “dividend” benefits in the form of positive cash flow and equity pay down and with real property you get full depreciation benefits into perpetuity… further, by using a financed/leveraged approach, the income property will net significantly greater returns…

So, weigh your options and keep it REAL!