Can Someone Explain REITs to me like in the most simple way?

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Can Someone Explain REITs to me like in the most simple way?

Aaron Heers
New to Real Estate · Dallas, TX · Member since 2020 · 34 posts · 11 votes

Please Explain REITs to me in the most simple way. How much capital do you typically have to have? How successful have your investments been with them? I feel like I need someone to sit me down and go over the process, but I do not know anyone that invests in REITs.

Thanks in advanced!

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Taylor L.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
3y
Quote from @Greg Scott:
It is basically like buying a stock or mutual fund that invests in real estate.  They lack many of the tax benefits of investing directly into real estate which is why most people on this forum have little interest in them.

 To add to this, publicly traded REITs can be fairly volatile, and there's nothing that investors can do to add value to their investment. Real estate investors generally consider REITs to be stocks, not real estate.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    3y
    It is basically like buying a stock or mutual fund that invests in real estate.  They lack many of the tax benefits of investing directly into real estate which is why most people on this forum have little interest in them.
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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Aaron Heers

    A REIT (Real Estate Investment Trust), is a corporation that invests in real estate.

    They will follow strict guidelines for being a REIT which may provide some added tax benefits.

    You typically buy shares In a REIT and similar to a stock their values will go up or down

    If you want to invest passively you can invest in a REIT or any type of real estate fund. The only restriction would be if it's for accredited investors only and a person is not accredited. But since JOBS act there are a decent amount of real estate funds that went through Reg A or CF that allow for non accredited investors

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    3y
    Quote from @Greg Scott:
    It is basically like buying a stock or mutual fund that invests in real estate.  They lack many of the tax benefits of investing directly into real estate which is why most people on this forum have little interest in them.

     To add to this, publicly traded REITs can be fairly volatile, and there's nothing that investors can do to add value to their investment. Real estate investors generally consider REITs to be stocks, not real estate.

    1Reply
  • Ian IppolitoBusiness Member
    Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
    3y
    Quote from @Aaron Heers:

    Please Explain REITs to me in the most simple way. How much capital do you typically have to have? How successful have your investments been with them? I feel like I need someone to sit me down and go over the process, but I do not know anyone that invests in REITs.

    Thanks in advanced!

    REITs are in many ways very similar to old-school real estate syndications. Multiple investors pool their money together to be able to invest in some sort of real estate strategy. For example it might be multifamily or self storage or whatever. And the investors also share the rewards via distributions.

    The REIT is required by law to distribute a certain percentage of its distributions in order to retain its tax advantaged status. That's different then a non-REIT real estate syndication or non-REIT crowdfunding deal where there is no such requirement.

    And then there also public REITs and private ones. Public REITs trade on the stock market so market sentiment can get overly optimistic or overly pessimistic and trade at different price than the underlying value. Private ones don't have the instant liquidity that public market investments do. On the other hand, and investor may be able to benefit from the illiquidity premium ( i.e.get a free extra return by having the money locked up).
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  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    3y

    Hi @Aaron Heers! I will add a comment you did not ask for :) 

    It's often difficult to connect the dots between activities and income on the ground with your returns when investing in REIT. The returns are often impacted by the mood on Wall St., a war in Europe, a CEO scandal or even a random tweet by an executive (like Elon Musk).

    As an example, check out the year-to-date performance of Sun Communities and Equity Lifestyles: 

    Sun and ELS both invest in RV parks, mobile home parks and other asset classes that my firm loves. But their investment performance is down about 20%. And each of them follow a similar pattern. But of course we know that their internal operations and profitability certainly do not follow this pattern. They are driven by the market, etc. If you want an investment like this that is fine. Millions of people have benefited. Personally I like direct investments in real estate syndications and funds. Happy investing!

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Aaron Heers:

    Please Explain REITs to me in the most simple way. How much capital do you typically have to have? How successful have your investments been with them? I feel like I need someone to sit me down and go over the process, but I do not know anyone that invests in REITs.

    Thanks in advanced!


    OK, there're two REIT, private and public REIT. Private typically requires you are Accredited Investors with most have 25k minimum.
    Currently there're 30 Private REIT available. All of them are making a profit this year and Performance YTD is 10%. The best in the whole investment asset class.

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  • Aaron Heers
    OP
    New to Real Estate · Dallas, TX · Member since 2020 · 34 posts · 11 votes
    3y
    Quote from @Paul Moore:

    Hi @Aaron Heers! I will add a comment you did not ask for :) 

    It's often difficult to connect the dots between activities and income on the ground with your returns when investing in REIT. The returns are often impacted by the mood on Wall St., a war in Europe, a CEO scandal or even a random tweet by an executive (like Elon Musk).

    As an example, check out the year-to-date performance of Sun Communities and Equity Lifestyles: 

    Sun and ELS both invest in RV parks, mobile home parks and other asset classes that my firm loves. But their investment performance is down about 20%. And each of them follow a similar pattern. But of course we know that their internal operations and profitability certainly do not follow this pattern. They are driven by the market, etc. If you want an investment like this that is fine. Millions of people have benefited. Personally I like direct investments in real estate syndications and funds. Happy investing!


     Great information! Thank you so much, Paul.

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