Why I Don’t Recommend Investing In REIT Real Estate Deals
Suddenly Everyone's Recommending Real Estate—But They're Missing The Payoff
After being poked fun at by stock market gurus for 25 years because I have 95% or more of my assets in real estate, right now, I have to admit, I’m feeling something that might be described as vindicated.
I don’t mean to rub the current reality under anyone’s nose, but I want to make sure you’re getting the message.
I’m watching (and probably you are, too) as many market mavens are now jumping on the real estate band wagon. They’re promoting real estate as the safe haven option… some even admitting, finally, that the majority of their own wealth is tied up in property, too.
These career stock pickers are telling their readers to invest in real estate for both diversification and better returns. They see the writing on the wall. A stock market crash is coming.
You’ll get no argument on any of those points here, as I know you know. I’ve been leading this charge and banging this drum for decades.
The trouble is, those stock market guys who are now suddenly all over and all in on real estate? They’re still not getting it.
They’re recommending REITs and crowd-funded commercial property deals. While there’s nothing wrong with either of those investment options, neither carries what I consider the biggest benefit of investing in real estate—which is direct ownership and control of the asset.
Of course, most investors can’t buy a multi-million-dollar commercial property on their own, so the only way to get in on a deal like that is to be part of a partnership or some other kind of investor pool.
And a REIT can generate higher than average yields compared with that from a single property for reasons ranging from high leverage to economies of scale with administration.
However, investing in a REIT or becoming part of a funding crowd is not the same as investing directly in a piece of real estate. When you buy a REIT, you own a piece of paper traded on a stock exchange, and the value of that paper can be more volatile than the underlying value of the property.
This Is Why You Should Own Real Estate Directly
Owning property directly—I’ll make the point again because it’s a key point—you can make adjustments if and as necessary. You could switch a rental from long-term to short-term. In some cases, you could change from residential to office or vice-versa.
You could install a pool in a home to make it more rentable.
With raw land, you can add value by segregating.
I remember a reader who wrote years ago to tell me how she and a fellow reader she’d met at one of our conferences had bought an acre-and-a-half of land on the island of Roatan. The pair divided the parcel into three half-acre lots. They were then able to sell one of the lots for what they’d paid for the entire property… and they each kept one of the two remaining lots for their own use.
Effectively, they tripled their money… or, you could say, they got their own Caribbean island lots free.
They also achieved diversification of their portfolios and their lifestyles.
Could you achieve the same overall return from a REIT? Of course not. Nobody’s building a beach house on a REIT.
Most of the newly converted stock gurus are focusing on U.S. real estate. Again, that’s a big flaw in the overriding recommendation.
Expanding your U.S. portfolio from all stocks to include REITs or even individual U.S. real estate leaves you still completely exposed to the U.S economy and the U.S. dollar.
Overseas real estate is the key to achieving real diversification in terms of market exposure and currency.
It also brings another level of diversification that has never been more important than it is right now and that is achievable no other way.
A piece of real estate in another country can be your escape hatch… a place to go should you decide you want or need to bug out from wherever you normally live for one reason or another… like, say, a global pandemic.
A real estate investment can also be a direct path to residency, either, again, as part of a Plan B or because you’d like to live somewhere else.
I predict a tsunami of interest in global property markets. It’s already begun.
After a career as a global property investor that has spanned more than two-and-a-half decades, I’m on the edge of my seat watching for what I believe are going to be the greatest opportunities of my lifetime.
I’m glad you’re along for the ride.
Lief Simon
