Source: azcentral —
Many Americans are so enamored with homeownership that they might forget there are other real estate investment options — possibly better ones.
Owning a home provides shelter, appreciation potential, tax deductions and other benefits. Other real estate choices expand on most of that, except that they don’t provide a roof over your head.
Rental properties are one possibility, and so are REITs or real estate investment trusts, along with real estate funds. Diversification, profit potential and other benefits are available with these choices, though the specifics vary.
Homeownership can be a sound choice, but with interest rates elevated and many property values up sharply, it’s an unaffordable and even worrisome option for some potential buyers, said Jeremy Pagan, a real estate analyst at researcher Morningstar.com. “It can be scary to dip your feet in the water of homeownership,” he said.
NAREIT, the National Association of Real Estate Investment Trusts, describes owner-occupied homes as more of a consumption good than an investment because these dwellings don’t produce income yet require owners to meet a slew of ongoing expenses. Not everyone would agree entirely with that description, but rental properties, REITs and real estate funds clearly are investments. Here’s how they compare:
Time, effort and control
If you don’t mind getting your hands dirty, owning rental homes directly can be a good way to go. Not that you literally need to unclog toilets or paint scuffed up walls, but you at least should be able to oversee workers doing those tasks. Unless you hire a property manager, you also should expect to deal with tenants, from handling lease applications to collecting rent.
REITs are companies that manage their own property portfolios. REITs trade in the stock market, so anyone buying shares doesn’t need to get involved in the property management process. Real estate funds are even further removed from all that and instead buy REIT shares along with the stock of homebuilders, construction companies, and so on.
