It seems like a vastly better option for most folks to be in a REIT etf than to try to play the RE magnate and go around speculating in properties

People are dumb.

You see this at all levels. There are people who own property (and are very successful) who claim to collect >100% of rents. This sort of mathematical dishonesty is what leads to people claiming that investment property is a good idea.

Yeah most of the people I know that do this "don't like the stock market" or "like owning things they can see". But you can YOLO leverage physical property, which you can't do with REITs

Exactly. My sister gets around 5500 in almost passive income every month , and she started that with 3000 (which I ran up for her ) , she took 140 of it bought 5 properties in short sales with 25℅ down on each . So yeah she has to do landlord things (snow removal , complaints , leaks ) ,etc but its all less than 10 hours a week and put her in a spot where she can be stay at home til her kids go to school

cause you can make more owning a multi family then investing in a REIT

How so? Leverage? Risk reward is certainly worse

JB , all you have to know that some of the greatest wealth that has been accumulated has come through rental of properties.

You're paying someone to manage everything in a REIT. The reward is much, much smaller in a REIT, and depending on how you define risk, that might be greater as well.

There's huge inefficiencies in smaller housing markets that can be exploited fairly easily on a small scale, but not by a REIT. Real Estate is slow to adjust. Trends can be seen and predicted. "Timing the market" is probably easier in real estate than any other asset class. REITs are too big and illiquid to fully take advantage of these trends.

Your numbers seem a little weird (as in I can't really understand what you're saying). But is pretty much what I mean by "don't do math".

My rich landlord friend is making up to 15% on osome of his properties.

Those who think you can't get more than 3% or whatever, do not know what they are talking about. You can make good money if you buy real estate at auctions undervalued.

This for sure. But to find items for 90c or less on the dollar isn't trivial.

It's also easy to show a loss from rental properties each year which can be deducted from other income. It's quite interesting what ends up getting folded into the expense categories on a Schedule E.

Trying to pick properties is bit trying to pick stocks (except transaction costs are much bigger), when you add levarage on top of that, then the danger is even greater. I'm not saying you cant do it, but most people will probably fail at it.

Yes, people will have examples of their aunt Louise, who run $10k into $100k by leveraging a few properties in a hot market but there is a lot of examples of people who did the same and went broke. I'm mean, how quickly people forgot Casey Serin? Thats what happens in bull markets
https://en.wikipedia.org/wiki/Casey_Serin

Is this thread about making the point that many people would be better off investing in REITs as opposed to buying properties or is it about why people would prefer investing in properties over REITs? stinkypete gave you the answer to why people would prefer property investment over REITs which is pretty much what the title implies. You basically responded by stating people would mostly be better of buying REITs. There is a really good chance stinkypete agrees with you on this. You are taking this thread in two directions. The question stinkypete addressed is a far more interesting one.

/Thread.

Actually REIT's are pretty horrible investment vehicles. You're paying someone a lot of money to manage that thing... It's just hidden on the income statement because it's paid out in salaries.

You're also depending on those very expensive people to be smart. Your investment will succeed or fail based on how good at Real Estate they are and how well aligned their incentives are with yours. Lots of REIT's have either had terrible returns or gone under completely because of bad management.

Compare all of that to owning rental properties which is a good old fashioned business. It can be either really good or really bad depending on how good of a real estate person the person running the business is. The leverage is cheap, plentiful, and as long as the mortgage payments keep coming there are no margin calls. It's not something you should be comparing to financial instruments. An apples to apples comparison for real estate would be owning a concrete company or a trucking company. This explains why everyone knows some idiot who has generated terrible returns on rental property--they thought that all they needed to make money was enough cash/credit to get the property under their name and it would start earning a profit 'passively'.

EDIT: I'll also bet that collectively we all know a ****load of people who lost money in restaurants, and a bunch of people who made money doing other stuff. I've known a guy who made 6 figures running a janitorial company, a guy who made 6 figures landscaping, and a guy who makes a hell of a lot more than that selling yearbooks in north central Indiana. Being willing to go out and do something on your own is RICHLY rewarded in this economy if done with a little bit of cleverness.

By that logic you should never buy a stock either.

Leverage is really huge. For example, let's say you buy $1 million of property with 25% down that has breakeven cashflow. You're into it for $250k, so a 5% appreciation actually gives you 20% ROI each year.

The problem is you incur significant transaction costs when you buy and sell, there's almost always a cap to your cash flow (market rate x 100% occupancy), but not really a floor (meth lab discovered in unit, get building condemned + pay for cleanup), etc. People assume the best and ignore the possibility of the worst scenarios in order to justify a marginal investment.

REIT's are for people who want exposure to real estate but don't have the savvy to do it themselves and have liquidity needs. You can go on loopnet and buy a turnkey commercial property by a major nationwide retailer rented NNN for a few million at 5-6% cap, get a ARM for 5-6%, and bank on rates staying low and the property appreciating and you'd probably do just as well as a REIT, but with large variance and very little liquidity.

If you want to bet on inflation, lots of property and lots of mortgages are the way to go.

Structures are clearly depreciating. Even with appropriate upkeep, assuming a >inflation rate for a cashflowing property is wildly optimistic.

The way you appreciate an investment property is to increase the profit.

Hedge vs inflation

lol

Management quality matters a lot in stock selection as well. Generally speaking the REIT world is a lot worse managed than most the stocks I'd be looking at. It's also significantly harder to tell whether the REIT's management is doing a good job.

REITs are terrible. Almost all of them are total scams with outrageous fees. They pay themselves as brokers, property managers, on and on and on.

If these clowns actually knew dick about real estate, they would use their own money, or set up a fund. Almost all REITs are run by people who know dick about real estate.

Also, owning property is way more tax sheltered that owning shares in a REIT.

I mean it's not difficult to just buy a low fee vanguard or fidelity REIT. If your comparison is to a high fee snake oil fund then yeah reit funds are bad.

The fees he's talking about are baked into the income statement. They are paying someone a lot of money to manage the property in the REIT or they are just buying a basket of REIT's which also contain these expenses. Comparing owning REIT's to owning brick and mortar real estate is super silly and this is why.

Oh gotcha

I think REITs are a reasonable way to get RE exposure but yeah it's very tough to compare to brick and mortar.