Many people inquire about the differences of investing in REITs vs. directly in core commercial real estate. There are several key differences which I will point out here...
 
          1. REITs are paper assets that are often publicly traded. Therefore, REITs are highly correlated to the stock market, and come with the volatility that is often seen with paper assets. Although REITs do own real estate, investors in REITs do not. You own shares of a paper asset – similar to stock investing. So, REITs are more volatile than investing directly in real estate. In fact, REITs are typically more volatile than the stock market!
 
          2. By investing in a REIT, you miss out on all of the key tax advantages of investing directly in core real estate. One of the biggest tax advantages one can realize is that of depreciation. Those that invest directly in real estate, such as commercial multifamily, get to take advantage of this huge saving. Those invested in REITs do not get this benefit. Similarly, deferring capital gains and depreciation recapture is also lost when you invest in a REIT instead of directly in core real estate. So, REIT investments are taxed the same as any other stock investment.
 
          3. While many investors see the importance of diversifying their paper asset heavy portfolio, they mistakenly think that they are going to accomplish this by investing in a REIT. Investment in a REIT is owning an interest in a company, which follows economic cycles that closely correlates with the stock market. Due to this economic cycle dependency, investors are unable to properly get the diversification they may be looking for with economic downswings.
 
          4. By investing in a REIT, you give up a significant wealth building tool – leverage! Have you ever considered walking into your local Wells Fargo or Bank of America branch and asking for a loan to buy their stock? Obviously not! Why? Because we all know they would never do this, due to the volatility of the stock market. Similarly, with REIT investing, you also do not get this powerful benefit. Leverage as a tool is a potential wealth accelerator that can be achieved with direct real estate investing, not with REIT investing.
 
          5. A REITs dividends are taxed at the individual/ordinary tax rates – at the time of this writing, this can be as high as 39.6%. In contrast, most investors pay no taxes for several years on commercial multifamily dividend payments due to depreciation!
 
See how LRG Properties can get you access to commercial multifamily investing and all of its inherent advantages which you do not see with REITs - so that you too may "Innervate Your Investments!"

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