Real estate investment trusts (REITs) are a great way to invest.
They give you exposure to the real estate industry without having to fuss over angry tenants and several properties. I’d even argue they’re among the best passive investing methods on the market. Many investors would agree.
And in case you didn’t know, there are two types of REITs.
Public and private. The public REITs are the ones you see on the stock exchanges, where anyone who’d like to invest has access to deposit their funds (and start earning a healthy real estate dividend).
As for private REITs, they’re limited partnership businesses where you may need to qualify to deploy your capital. There are pros and cons to each, which is the topic for today’s discussion.
You’ll soon know whether private REITs are worth it.
Qualification
The initial barrier to entry in terms of a private REIT is the qualification.
You need to meet certain requirements to be able to invest. That’s essentially why it’s private. The requirements are often monetary based, concerning minimum investment capital, net worth, and possibly even yearly income.
It’s not exactly accessible to everyone, which has its own pros and cons.
Return and Liquidity
Given that private REITs typically generate higher dividends than their public counterparts, some people prefer them.
It’s important to note that private REITs are less liquid because you cannot just sell your holdings on the stock market like you could with a public REIT. Liquidity is a big reason people go with the public version because you can access your capital at any time.
Even though private trusts might generate more revenue, they might take longer to return the capital to their investors.
Regulation and Flexibility
Since public REITs live on the stock exchanges, they are subject to SEC regulations.
This makes them far less flexible than private REITs, which makes the public more volatile. Another reason for the volatility is the presence of stock valuation. Since private REITs aren’t constantly being compared to their “valuation,” they’re a bit more stable.
A private REIT has less accountability which means they can take more risk in terms of investment options which is likely a source of the higher rewards you see in the private sector.
Are They Worth It?
The question of whether they’re worth it or not depends on your situation.
If you have access to a private REIT, I’d say it’s worth considering. The additional, less volatile return is preferred amongst some groups, making them wonderful long-term investments.
If you don’t possess the eligibility to become a partner in a private REIT, then obviously, the public REIT you see on the stock exchanges is a better option.
You also must consider your risk profile as an investor. Questions are key. Can you handle the longer waiting period to see returns in a private REIT? Do you value quick, monthly dividends that compound with a public trust?
Your strategy will give you your answer. There is a wonderful opportunity with both options!