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Rental Properties VS REITs: Which One is the Safer Investment?

Your friends have told you their advice regarding REIT vs rental properties.  However you’re the kind of person that understands that investing in rental properties comes with a long list of lucrative benefits. You know that on top of being financially rewarding, rental property investments can offer a reliable income stream, increase your appreciating assets, and add to your overall personal net worth. But you also know that, as with any investment, before taking the plunge into a rental property, it’s important to assess the various options available to you.

So, let us help you clarify the process of investing in real estate, and where exactly those pesky risks lie. There are two streams of thought when it comes to investing in real estate: Rental properties and REITs. Sometimes investors will choose to invest in both, while others will firmly stick to only one. Of course, both rental properties and REITs have their own set of advantages and disadvantages. In this post, we’ll take a look at both investment opportunities in more detail and explore the pros and cons of each. Naturally, we’ll also cover some of the key benefits of partnering with a full-service turn-key company such as Spartan Invest. That way you’ll know exactly where you’d like to invest your hard-earned cash. Ready to dive in?

Investment Option 1: Purchasing Rental Property

Standard rental property investments are better suited to those who want to take more of an active role in their investments. Opting to invest in rental property means you’ll benefit from direct ownership, which allows for greater control over your investment and certain tax advantages. But, with these benefits comes a few challenges too.

Benefits of Rental Properties

A rental property can offer the following:

  • Regular Cash Flow: As you may have guessed, monthly rentals can offer steady cash flow into an investor’s bank account.
  • Asset Appreciation: In addition to monthly tenant payments, rental properties will also appreciate in value over time.
  • Tax Deductions: Rental property owners can deduct the majority of expenses from their taxes they incur through managing their investment property.
  • Flexibility: Because it’s your investment, you get to be the sole decision-maker when it comes to all things concerning this investment.

Disadvantages of Rental Properties

As mentioned above, rental properties can offer great advantages to investors, but they can also come with a few challenges. Some of these include:

  • Upfront Capital: You must be able to provide a down payment for a property or be able to get a mortgage loan that does not require a down payment. Although, with a company like Spartan Invest, we can walk you through financing options and explain the pros and cons of financing versus cash purchase.
  • It Sometimes Means More Responsibility: When partnering with a real estate investment company they often say they will manage all aspects of the investment. However, some ‘turn-key’ investors offer different levels of service, depending on the specific company. Unfortunately, there are several areas in which the standard ‘turn-key’ operation fails investors, meaning more responsibilities and possible headaches for investors. This is why Spartan Invest has created and embraced our complete full-service model.

It’s important to note that if you work with a full-service turn-key property investment company, many of the challenges investors face when owning real estate will be significantly reduced. This is because companies like us offer a one-stop-shop when it comes to property investment. We locate, purchase, and rehab the property, plus we then find and manage the tenants and provide regular property management.

Investment Option 2: REITs

A Real Estate Investment Trust (REIT) is a company that owns a variety of commercial real estate, including office blocks, apartment buildings, hotels, and shopping centers. Created in the sixties, REITs are designed to give individual investors the affordability and access to invest in real estate without the upfront costs that come with buying an investment property on your own. Like the way you would invest in a company’s shares, REITs offer easy access to owning real estate without becoming an actual landlord.

Benefits of REITs

When chosen well, REITs can offer the following advantages:

  • Less Hands-On Approach: For the most part, REITs investors provide the capital and let professionals invest on their behalf. Depending on your personal investment style, this hands-off approach can be appealing to those who prefer to hand over control of their investment.
  • Low Investment Minimums: With REITs, investors don’t need a lump sum to put down as a deposit. Instead, they will need to provide investment minimums, which can be pretty low compared to a property down payment.
  • Regular Cash Flow: Rental properties provide passive monthly cash flow  via rental income, whereas REIT dividends offer monthly or quarterly cash flow. The dividend amount can vary over time depending on each REITs’ success.

Disadvantages of REITs

While REITs provide investors the ability to invest in real estate with fewer funds  and commitment, it’s also important to mention disadvantages too:

  • Volatility: Publicly traded REITs are traded on the stock market, which means they can experience the sometimes volatile fluctuation that comes with the rise and fall of the stock market. This change in stock value can happen regardless of whether or not the property’s value has changed.
  • Lack of Control: Unlike property owners, REIT investors just have to worry about possibly losing the money that they’ve invested. While this offers far less risk, it means investors have no control over the asset.
  • COVID-19 Impact: As more and more people and businesses embrace the work-from-home (WFH) movement, the COVID-19 pandemic has made investors hesitant to purchase commercial properties during this uncertain time––as well as the foreseeable future.

Which is the Safer Investment?

So, as you can see both property rental purchases and REITs have their fair share of both pros and cons. The safest option depends on your personal preferences regarding investing and what you actually want out of your investment. No matter what direction you go in, investing in real estate is a great way to gain extra income and expand your assets and financial portfolio.

It’s important to weigh up the advantages and disadvantages we’ve listed above and choose the option that suits your lifestyle, as well as the amount of time, effort, risk, and money you can put behind this investment.

Remember, housing will always be a need. Therefore making it a much more sound investment option. While housing markets may fluctuate in price, the overall demand for housing remains relatively stable. To discover more on this topic, read our previous blog post here.

Contact Us Today

Need help finding profitable investment properties? At Spartan Invest, we provide high-quality investment properties at reasonable market prices. If you’re looking to diversify, or just need your investments to start providing stable, reliable income month after month, then a turn-key investment is the solution.

To find out more, visit our website or call us at 205-202-4118

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