7/13/2019 Comments
These are 3 methods that investors use to include different types of assets in their portfolio: REITs, stocks and real estate investing. So, which one should you settle for? This article will examine each one, along with their advantages and drawbacks, after which you can come to a conclusion. REITs (Real Estate Investment Trusts)
REITs, short for real estate investment trusts, are nothing more than companies. These said companies allow investors to purchase high-quality real estate. REITs are the ones financing the real estate, and by giving investors ways to buy them, they are doing communities a great favor, as they aid them in their growth process.
Stocks
Stocks are quite easy to understand. Basically, when you buy shares from a company, you end up owning a part of the company, but you won’t be in charge of the whole company. For instance, if a business has 500 shares of stock and you end up purchasing 10 of them, 2% of the company will automatically be yours. But there are also times when a company can have millions of shares, in which case you barely own a percentage of the business. In spite of this, the main reason why people are investing in stocks in the first place is that they want to earn some return. The return will either come when a stock pays dividends, or when the price goes up and you can sell the stock for a convenient price if you wish to. Companies are engaging in selling stock shares in order to gain money. The money they raise can be used for investing in the business’s growth, a new product line, or for repaying debt. It’s essential to know that stocks are typically offered through IPO or initial public offering. Therefore, when you purchase a stock, it will be bought from another investor that sells it and not from the actual company.
Real Estate Investing
Although it has to do with real estate too, this type of investment is different compared to REITs. Whereas REITs allow you to invest without actually owning the properties, real estate puts you in the ownership, management or sale of the real estate.
“Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 20-year returns in the commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%. Residential and diversified real estate investments do a bit better, averaging 10.6%. Real estate investment trusts (REITS) perform best, with an average annual return of 11.8%.” Below you will see a 20 year chart of the performance of REITs compared to the S&P 500. As we mentioned before, REITs can be more volatile. The top in 2006 for the REIT index to the bottom in 2009 represented a roughly 70% drop. However, the gains were recovered rather quickly. Investing in real estate or REITs after a market crash is definitely a good idea. Comments | CategoriesAll ArchivesSeptember 2022 RSS Feed |
REITs vs Stocks vs Real Estate Investing - Pros and Cons (2024)
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