While it's commonly believed REIT's are perfect for first time investors, this may not actually be the case. Keep reading to learn why.
What Are REIT's?
REIT's, essentially, are like stocks. They're companies who invest in real estate directly and sell shares of it like a stock. They take on investors by providing a way for them to earn a share of the money earned from real estate
ownership. Typically a share could run as high as a 15% return on your profit. But why settle with a 15% profit when it's possible to receive a full return on an investment by investing in your own properties?
Why REIT's Are Dangerous
REIT's take away control from the investor. While a share can give you some say in property investment decisions, the majority of control goes to the REIT fund manager, who will make purchasing decisions for both you and the company. This results in a lack of say as to where your money is going and little or no management control. Lack of control means lack of decision when times are bad, meaning you have to completely trust this company when they may not necessarily succeed.
What About the Risk Involved with Income Property Investment?
While there are risks involved with investing in your own property, there are also ways to guarantee your safety. Jason
Hartman recommends diversifying property investments by purchasing multiple properties in different locations. Purchase as many properties as possible to maximize return and to protect yourself from the chances of collapse in any given location. Though this may seem intimidating, if you have a good credit score, it's possible, even easy, to finance more than one property.
Protecting Yourself with Property Diversification
There's risk involved with investing every resource into a single property. If
the market changes or something goes wrong, it's possible
not to receive a sizable return on an investment. Multiple properties can protect against income losses if one of your tenants leaves, or if a property requires maintenance. To do this, it's possible to borrow from a variety of lenders to complete your investment portfolio. Borrowing money isn't as risky as you might think, it's possible to include monthly payments in your tenants rent, effectively having your tenant pay the mortgage.
Ultimately, while REIT's may not be the best real estate investment opportunity available, there's quite a bit of opportunity in income property investment to create positive cash flow with multiple properties. (Top Image: Flickr | 401(K) 2012)
The Young Wealth Team