Comparison of direct property investment (buying a condo or building) vs buying REITs (eg stocks of Boston Properties, SL Green, Vornado who own a lot of Manhattan commercial properties).
1. Liquidity: REIT wins
REITs are liquid and can be bought or sold anytime. Not the case for direct investment.
2. Entry level: REIT wins
Capital requirement for REITs is low. But to buy a Manhattan condo, the starting price point is approx $500,000.
3. Leverage: Direct wins
Direct investment benefits from the power of leverage. For example, one puts down 30% in downpayment. If the property appreciates 10%, the return on investment becomes about 33% (10% / 30%).
4. Return on investment: Direct wins
Returns from direct investment is much higher because of the power of leverage. With REITs, they typically invest in very large properties which will have a lower return from the competition from institutional buyers. By the time they pay the MBAs and numerous staff, the return to investors become significantly reduced.
5. Control: Direct wins:
The property owner controls performance of the property. With REITs, the investor does not have any control.
In summary, I personally do not own any REITs. If one needs liquidity or has limited capital, then REITs is a good option. But if tying up capital for at least 5 years is not an issue and one has the required capital, then I recommend buying a property directly.
When was the last time you hear about someone making it big from REITs? The people making money from REITs are the REIT's management, through their management fees.
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