San Jose, CA · Member since 2019 · 8 posts · 13 votes
Hi everyone,
I am new here and hoping to learn how to invest in real estate. There's a lot of blogs out there promoting REIT or things like Fundrise but I am a bit skeptical and I am leaning towards investing in single family homes and renting them out in the midwest or the south. Can someone explain to me the benefits of investing in single family homes?
Let's say REIT is giving me return of 10 percent annually... can a rental property beat that? What are the pros and cons? What are the tax benefits of owning a rental property versus investing in REIT.
Basically I want to see if I invest $100,000 in REIT versus rental properties, which option would put me ahead?
A ton of great advice here already. The important things are to:
1) Always think "diversification" to minimize the impacts.
2) Always keep in mind the tax hit. Depending on your tax bracket, you could be paying as much as 37% in taxes on your X% interest from REIT as it is considered ordinary income.
3) While keeping nu 2 above in mind, you can always invest in REITs (or syndications) via tax-deferred or tax-free accounts (example, is IRA) which will either allow you to hopefully lower or remove in some cases your tax burden.
I am new here and hoping to learn how to invest in real estate. There's a lot of blogs out there promoting REIT or things like Fundrise but I am a bit skeptical and I am leaning towards investing in single family homes and renting them out in the midwest or the south. Can someone explain to me the benefits of investing in single family homes?
Let's say REIT is giving me return of 10 percent annually... can a rental property beat that? What are the pros and cons? What are the tax benefits of owning a rental property versus investing in REIT.
Basically I want to see if I invest $100,000 in REIT versus rental properties, which option would put me ahead?
It depends on what you want. Rentals are much better over the long term. Appreciation, principal pay down and eventual cash flow. But it does require management.
REIT's are good if you are looking for a passive investment. A better passive investment might be private mortgages.
@Seung Oh I retired by moving money from the stock market into multifamily syndications. Public REITS typically make Wall Street. Equity investments rather than debt investments have changed my life. 10% that you are paying taxes on isn’t that good.
@Seung Oh you're in the right place for syndication deal flow. My strong advice. Get a lot of education first and keep your powder dry until you understand how to evaluate opportunities and more importantly; sponsors. Enjoy the journey!
Direct real estate ownership has the advantages of leverage, cash flow, and preferential tax treatment. REITs have the advantage of being liquid and very passive. I believe that syndications offer the best mix of these advantages, because you get direct investment in real estate as a passive investor, using leverage and receiving cash flow.
You asked about how people get started in syndications, as @Ivan Barratt said, education is the best place to start so you can learn to tell a good deal from a bad deal. Syndication School is a great place to get started.
Next step is to build deal flow. Build relationships with syndicators. Get on their investor list so you can start seeing their deals. Look for deals you like with experienced teams you trust, and invest!
@Seung Oh the biggest difference I can think of with SF homes and investing in a syndication is how active do you want to be? If you want total control and deal with everything in between then go the SF home route. Now if you want to be passive and be informed what is going on with the project and not have to make any decisions besides be updated and monitor your returns, then syndication is the path.
@Holly Williams did a great job explaining the REIT.
Syndication sounds great but it almost sounds too good to be true! I will check out syndication school. Is there any other books on this topic to learn how to evaluate deals?
I will say that I think a great option, for anyone with the capital, try one of each to start. That way you're diversifying but then in that you can see which one performs better for you, and then you can buy more of that.
A ton of great advice here already. The important things are to:
1) Always think "diversification" to minimize the impacts.
2) Always keep in mind the tax hit. Depending on your tax bracket, you could be paying as much as 37% in taxes on your X% interest from REIT as it is considered ordinary income.
3) While keeping nu 2 above in mind, you can always invest in REITs (or syndications) via tax-deferred or tax-free accounts (example, is IRA) which will either allow you to hopefully lower or remove in some cases your tax burden.