Riverton, WY · Member since 2016 · 51 posts · 4 votes
Let's say I have 50k. Would the cash on cash return be the same if I invested with an REIT route compared to the 50k being a 20% down on a multifamily buy and hold using a property manager?
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
9y
@Andrew McIntyre Depends on a multitude of factors. The underlying assets of the REIT and their yield playing the largest role. You can find that out from the REITs 10k reports.
Where would you buy the multi? If you have a property picked out its easy to run the numbers and compare them to the performance of the REIT to get a rough answer. Big disclaimer here: just like you don't drive a car looking through the rear view mirror only, neither should you invest your money solely based on a securities past performance.
In general, REITs behave and are valued like equities and have the same advantages and limitations ( you don't get tax advantages and amortization but they are passive).
Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
9y
@Andrew McIntyre Depends on a multitude of factors. The underlying assets of the REIT and their yield playing the largest role. You can find that out from the REITs 10k reports.
Where would you buy the multi? If you have a property picked out its easy to run the numbers and compare them to the performance of the REIT to get a rough answer. Big disclaimer here: just like you don't drive a car looking through the rear view mirror only, neither should you invest your money solely based on a securities past performance.
In general, REITs behave and are valued like equities and have the same advantages and limitations ( you don't get tax advantages and amortization but they are passive).
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
@Andrew McIntyre Some of this depends on your strategy, income level, and tax situation:
Strategy: If you just have $50K on time (someone passed away and willed it to you) and you're looking at real estate as an option, I'd say go with the REIT. You get immediate diversification. If you change your mind you can sell it. And if you don't change your mind you get (hopefully) a nice dividend. If this is just for "Property 1" and your goal is to get Property 2, 3, 4, etc. over the long term then I'd look at buying a multifamily. You might as well start looking at deals while interest rates are still at historic lows.
Income Level: If things go "wrong" with the investment property and you have the income to support it during a hiccup or two, you're probably safe. If you're a barista at Starbucks and you have no way to pay the mortgage if a renter bolts, that's another story. Hopefully you wouldn't qualify for a loan in that case, but, you never know. The bottom line is that you need reserves as well as a W2 to likely qualify for the mortgage. You don't need anything (other than money and Fidelity account) to invest in a publicly traded REIT.
Tax Situation: If you're income level is high and you live in a place like NY, California, etc. where there's a nice hefty income tax you'll want the depreciation, mortgage interest, etc. to use against any income the property will generate. If your annual household income is $50K you don't bear a huge burden, if it's $250K you won't like that margin tax rate on ordinary income (I'll skip the whole qualified dividend conversation to keep it simple). In California it's another 10%-13% tax on those ordinary income REIT dividends. All of a sudden deprecation and mortgage interest look a lot more palatable.
I'll also skip the part of the pain of managing properties or managing property managers. Neither of 100% passive but being in a REIT is (by definition) 100% passive.
Riverton, WY · Member since 2016 · 51 posts · 4 votes
9y
@Andrew Johnson Thank you so much! I eventually plan to invest full time hopefully within the next 10 years and was just curious as to what water would be warmer when I get my feet wet. I've also been looking into house hacking a 4 unit with an FHA loan (young and need to work on the ole credit score :/ ).
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
No, it won't. Likely not anyway. There's a big difference in financial benefit of owning real property over something like a REIT or note or something that isn't actually holding the real property.
I've never thought all that much about a foreign national investing in the US Market and being totally honest I don't have the legal or tax background to make a complete analysis. So take everything from here on out as total speculation!
Off the cuff I think the same general principles hold true with a few differences. The main difference being, no matter if you bought a REIT or multi family, your invest would have to be passive since you would most likely use a third party to purchase or at least manage the property. At the end of the day, a REIT is a equity just like Apple or GM. They will act much more like a stock, in which you get cash flow from dividends and appreciation via a share price market to market, than a RE investment.
As to what is the best way for a foreign investor to buy RE in the US, I have no good ideas. I'm out of my depth there. Syndication, Joint Ventures, turnkey...Those all come to mind.