Quote:
Originally Posted by Phanuthier
Curious, what are your thoughts about rentals vs a REIT? Obviously you aren't paying an upper management, and you are better leveraged off a mortgage, but its less dirty work and better diversified.
I've been wanting to do the calculation myself to see the advantages vs disadvantages... curious about thoughts of those that may have don't.
|
I think the leverage is the biggest thing. Obviously you can mortgage more than you can margin. That's good and bad. But on the other hand, you don't have to maintain your REIT. People vastly under estimate the cost of owning a house for 25 years. eg: I'll sell before I have to replace anything.
It all depends on capital appreciation; if you think your property value will appreciate significantly then you should own a house. Always trade the hot market. If not, maybe you need more dividend income.
There are also more write off's with owning property...that's not really a good thing but some people like it. That can increase your ROI if you do it right. I think selling either a REIT or a rental property would trigger capital gains so that's probably a wash.
If you can't seem to save any money, then owning a rental property might be a good thing. The forced mortgage pay down is always a nice surprise at the end of the year. That's retirement money if all goes well.
The other thing people tend to under estimate is the misery of dealing with tenants. If you really want to golf in Phoenix all winter you'll have to hire a management company or you'll go nuts. Just buy a REIT.
And, it really depends on what you assume interest rates will be over the life time of your investment. A person who is planning on owning houses for the next 25 years might have something to think about in the next ten years with rates.
I did ok with real estate but only because the market went up a lot and I happened to be in the right place at the right time. Looking back on the places I've owned and sold, I had a lot of close calls...houses on the river in Bowness, on the slippery slope in Wildwood, in leaky condo buildings, maniac tenants, fires, locusts. There's so much uncalculated risk. It's a young man's game and I'm 41.
For me, real estate is still interesting and I'm involved as a lender. I hate risk and only do deals that make sense to me, very good loan to value, good properties, good borrowers and a good Lawyer. I prefer relying on owners to pay me rather than tenants. Sucks for taxes though. No expenses to write off. And normally no capital gains. So I'm just kind of experimenting at this point. My state of mind is much better so far. We'll see about the bottom line this tax season. I'm wondering if it should be a business or personal nxt year. I suspect business.
I think that it's something I could do for income when I'm older and not go totally crazy. You could also buy stock in a mortgage investment corp instead of a REIT if this is the kind of thing you like. They usually pay about an 8% dividend. I suspect they're more stable, or at least as stable as a REIT. Again, it depends if you expect capital appreciation or not. That really is the key to what you should own.