How Do You Choose Between Rental Properties And Commercial Real Estate Investment Trusts?

by | Sep 6, 2022 | Investing Advice

What do owning single-family and multifamily homes have in common? These types of investments take up much of your time and energy. 

Residential real estate investments require you to assume many roles in an endless cycle. First, you find, fund, and upgrade the property. After that, you need to find renters which require interview after interview. Once you have renters, then you become responsible for ongoing maintenance. 

The cycle repeats itself when your renter’s lease agreement expires. 


Small Multifamily Rentals and Single-Family Investments Require a Lot of Effort. Here’s Why:

Single-family home investments may be good investments for some, but small multifamily rentals definitely have the edge. Even if a tenant decides to move, there are still other tenants helping to pay the mortgage. Think about it for a moment. Would you rather manage one property with 20 tenants, or 20 separate properties?

Sure, a property manager can be a great help with keeping the books, and resolving minor problems, but you are still the one footing the bill for maintenance and repairs. This can be quite overwhelming, especially if you already have a regular “day job”.


The Perks of Passive Real Estate Investments

On the other hand, real estate investment trusts (REITs) can provide fully passive investments. The beauty of this is that they are lead by a professional management team, so you are free from dealing with renters, repairs and unexpected surprises. 

In fact, it’s quite common for investors to move toward REITs, syndications, and other group investments in commercial real estate once they begin to understand the potential in passive investments. Here’s why:


1. Minimal Time Required

Have you heard the phrase “set it and forget it”? In a REIT, you put money in and collect cash flow in the form of consistent distributions. Your distributions are profits from rental income and from the strategic sale of properties within the fund. 

You won’t be fixing toilets, screening tenants, or handling maintenance. The REIT’s team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.


2. Opportunity for Diversification

It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets. 

By investing in a REIT, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business. This allows you to quickly and easily scale your portfolio while also mitigating risk.


3. Did You Say Tax Benefits?

Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate investment trusts. REITs are not taxed at the corporate level and the 2017 tax bill added a new 20% deduction for the income we pass through. 

You will, however, likely owe taxes on some income you earn from your passive investment. (Always check with your own CPA on your personal situation.)


4. Limited Liability

When you invest passively through real estate investment trusts, your liability is limited to the amount of your investment. If you were to invest $100,000 (our required minimum), your biggest risk would be losing that $100,000. You wouldn’t be on the hook for the entire value of the property, and none of your other assets would be at risk.


5. Positive Impact

With personal investments, you make a difference in two to four families’ lives, which is wonderful. But with real estate investment trusts, you have the chance to change the lives of hundreds of families and whole communities with just one contribution.

Each time we transform a premium mixed-use real estate property, we’re all contributing to a cleaner, safer, and nicer place for people to live and work. We’re proud to facilitate such a positive impact on communities and the environment. And that’s something you can’t easily see from stocks and mutual funds.


Still Thinking It Over?

There is a lot to consider when deciding between active and passive real estate investments. Whatever way you decide to invest, real estate investments give you a way to decrease risk AND expand your portfolio. Through real estate you have an opportunity to improve communities, and create a great environment for your tenants.