Hotels and REITs
REITs Make Good Investments, But There Are Some Downsides
By Buyincomeproperty.com
Nov 2, 2005, 12:02

Finding great investments is the goal of many, but today’s investment markets may be downright scary. REITs may be the cream of the crop with regard to property investments.

Many people who have only a vague understanding of what an REIT really is have one of two concepts – Anyone can do it or it takes millions to be involved. Both are downright wrong and my be hampering your efforts to get involved in the REIT investment market.

An REIT is a Real Estate Investment Trust. Put in the simplest of terms, it’s a company that holds a real estate investment. The most common REITs are malls, hotels and other major investment properties. The reason these are often held by REITs is simple – there are few people out there who have the several million dollars it would cost to fund such an investment privately. Those who do have that kind of money may not want to tie up the entire amount in a single investment.

Enter the REIT. Typically, the REIT investment works much like bond investments. A group of investors come together to fund the project. Individual investment amounts will vary greatly and it’s an opportunity for a single person to become as involved as they wish to be.

What are the advantages of the REIT investment? Actually one of the biggest is the “sit back and wait” advantage. If you really want to own real estate, you may have tried your hand at rental properties. But the renters call in the middle of the night with leaky pipes. The heating always fails on the coldest day of the year. Tenants move without paying the rent and collecting payments can be a real hassle. Even if you’re investing in property that you plan to sell (eliminating the renter plague), you’re dealing with contractors who don’t deliver, deadlines that aren’t met and sales that simply fall through at the worst possible time.

The REIT allows you to make your investment and wait for the results. Someone else deals with surly contractors and franchise owners who aren’t moved in on time. Meanwhile, you are still a property owner and you’re still investing in real estate.

Are there some costs and downsides to REITs? Of course, otherwise everyone would be taking advantage of REITs. One of the biggest for many investors is that they don’t have the “hands on” option they desire.

So how do you get started with an REIT investment? One of the best first steps is to find the people “in the know.” This may be those companies who handle the investments or friends who are deeply involved in this method of investing.

You’ll find some that are underadvertised and make great investments and others that are overadvertised and look like a good investment to avoid. Even if the profits of a particular REIT sound too good to pass up, make sure you know exactly what you’re investing in. The fact that the investment broker or company can’t take you to a piece of property and point out where your property lines are is another disadvantage of the REIT.

Finally, don’t take someone else’s word for the REIT that’s now the “hottest deal on the market.” Nothing can substitute your own research and your own “gut feelings” about all kinds of real estate investments, including REITs.