Funds, REITs or individual properties?

There are pros and cons to each, do you have a preference? What’s been your experience in researching or investing in these kinds of offerings?

  • Funds. Your investment is pooled with others into a fund that acquires multiple properties for rental income and/or appreciation
  • REITs. A special type of fund, REITs have specific tax advantages, and are a popular investment vehicle in commercial real estate. There are publicly traded REITs (available on the stock market), and in recent years, a number of online platforms have emerged offering REITs, such as Fundrise and RealtyMogul
  • Individual properties. With these investments, you’re investing (either alone or as part of a pool of investors) in a specific individual property. Depending on the investment type, you may receive regular cash flow (interest payments or rental income), as well as a share of the profits when the property is sold or refinanced.

Certainly, while there are pro’s and con’s to each of these, IMHO my preference is primarily in funds because a) REIT’s tend to track closely to the stock market, and I am looking for diversification from the stock market trends, b) in a REIT fund, you have little to no visibility into the individual real estate properties or markets being invested in, and c) for individual properties, you are somewhat putting all of your eggs in one basket (i.e. if you have $100K to invest, you are likely to put 100% of that into a single, individual property), whereas in funds, you could easily distribute that $100K across 4 or 5 different investments. I would love to hear other folks’ views on this.