I recently have been doing some research on different ways to earn passive income though REI. I came across investing in REITs (Real Estate Investing Trusts) which seems like a great way to earn passive income without dealing with the headache associated with managing rentals. Does anyone have any experience with this form of investing that could give some sort of insight on getting started? Any help is greatly appreciated!!
@Robert Brock , I personally feel that investing in REITS is a very different animal and process then investing in real estate. You're investing in a company that invests in real estate. Certainly REITs have their own strategic niche and plan. But your due diligence is going to much more centered around company operations, the Ks and Qs and statements and the drivers of the company. You will have very very very little exposure to the actual real estate owned by the REIT.
But differences aside, REITs have some advantages - They are very liquid. Dividends (such as they are) are pretty predictable. Risk is spread among many companies. And you are truly passive in all ways.
Like a large ship at sea though they require lots of time and sea room to turn and maneuver and when they sink it takes forever but you have absolutely no control over that sinking process.
You lose some direct key benefits with REITs as well. The only way to shape your portfolio is by selling and buying different REITs. You do not have the luxury of looking at the portfolio of properties and carving off what you don't want. You have no direct control over cash flow, allocations, contingency funding and modeling. And when you sell you incur a taxable event. You don't have the option of deferring tax through a 1031 exchange.
I like REITS early in a cycle when their scale allows them to ramp up with good purchases and dividends are typically much more generous through the FFO payouts. As a market matures a real estate investor likes to become patient and choosy - two characteristics that may not be compatible with a board of directors of a publically traded company.
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