Couple painters with paint rollersReal estate is either a great investment or a terrible investment, depending on who you ask. It all depends on what you are buying and where you are buying it. Whether you buy a property with hopes of selling it for a profit or renting it out as a commercial space, it’s dicey as a business endeavor. There are a lot of X-factors in profitability; taxes and maintenance are but a few. That’s why it’s an investment only for the brave who know a thing or two about it and has time to stay on top of it.

So, you don’t want to be the next Barbara Corcoran, but you think real estate could work for you as an investment? It is possible to invest in real estate minus most of the X-factor of “what happens if there’s a termite infestation that will cost me an arm and a leg?” There are investments called real estate investment trusts, or REITs for short, that trade like stocks on an exchange. The investment trust owns the real estate, manages it and passes profits (or losses) on to you if you’re an investor. There are different kinds, like hotel REITs, apartment REITs, office building REITs, etc. If the REIT you are in does well, you get the income without the hassle of owning the physical property. Keep in mind, though, that you pay the REIT managers a fee for their hassle.

And now you, as an investor, have another hassle: watching interest rates. When interest rates go up, REITs go in the pooper. Why? Because to buy the real estate within the REIT, the managers need to borrow money. If they can’t do that cheaply, the REIT suffers. So while you aren’t worried about fixing a water heater issue with a REIT, it’s not all home, sweet home.

By | 2017-01-23T08:54:59+00:00 September 8th, 2015|Finance 101|0 Comments