So, you wanna become a real estate investor. You’ve heard of REITs but you’re not sure if they’re a good investment or not.
First of all, what are REITs?
Real estate investment trusts (REITs) are companies that own, operate, or finance properties that produce income and real estate ventures. Like mutual funds or exchange-traded funds (ETFs), they own not just one, but a basket of assets. Investors purchase shares of a REIT and earn a proportionate share of the income generated by those assets.
You see, the number one pro of REITs is liquidity. If you invest $20,000 today, you can get your money out tomorrow in case of an emergency. But you know what? I don’t really consider that an advantage.
That is actually the number one reason I’d not want you to invest in REITs. You don’t want liquidity. Access to a lot of money is not something you want. That’s why I always choose to stay broke.
REITs are not backed by real property, REITs are an investment in a piece of paper. And I always say…
“Never trade paper for paper. What you wanna do is trade paper for assets that produce more paper.”
Keep in mind that when you invest in REITs, you don’t get:
- True ownership of the property;
- Tax benefits;
- Payments every month;
- Depreciation — which is one of the major benefits of buying real estate in the first place.
And if there’s a refinance, you don’t get to stay in the deal.
So look, I’m not a big fan of REITs, but I’m not denying the fact that a lot of people have made money investing in them.
If the only way you’re gonna be investing in real estate is through REITs, then do it. It’s better than nothing. I’m just saying that it’s not the best way.