This is Mark Warner with propertiesandoptions.com here with the next series of how to compare a real estate investment in residential property against other investments that are available in the marketplace.

Today I’d like to compare a real estate property investment with a Real Estate Investment Trust, or what’s commonly called a REIT (pronounce reet).  A REIT can be either private or public.  A public REIT is one that’s traded on the New York Stock Exchange or other exchanges versus one that’s private and doesn’t have the outside secondary market trading its stock.  As we’ve always talked, we look at appreciation, tax flow, tax savings, and debt reduction which a property residential investment has those elements to it.

In a Real Estate Investment Trust you have various types of Real Estate Investment Trusts.  You can buy commercial property, either apartments, office buildings, resortREIT properties, hotel properties is an option or you can buy debt type Real Estate Investment Trusts which are mortgages against commercial property.  When you look at a Real Estate Investment Trust that’s actually in property you’re looking for appreciation.  Depending on how the property is bought if they’re looking for strictly appreciation you may not have cash flow but rented real estate will always have cash flow or will hopefully have cash flow above what their debt service is.  There is some tax savings available if you can appreciate real estate in or real estate investment trust and you potentially have debt reduction depending on how much you’ve leased the property for. A Real Estate Investment Trust does have some liquidity features to it if it’s already publicly traded.  If it’s not already publicly traded then it probably wouldn’t have any liquidity features to it.

Depending on the type of Real Estate Investment Trust that you purchase, it would have all of the potential elements that we talk about in buying residential property investments.  The thing that you get with a REIT is you get somewhat like an investment fund only in the real estate arena. So REITs have some of the same benefits that you would have in the residential property investment.  The thing you wouldn’t have is if it’s a mortgage REIT.  A mortgage REIT isn’t going to have appreciation, it’s not going to have tax savings, and it’s not going to have debt reduction so all you look for in a mortgage REIT is the cash flow.

This is Mark Warner with propertiesandoptions.com

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