Investing In Real Estate: REITs or Physical Rental Properties? (Passive Income & Financial Freedom)

Are you interested in investing in real estate? Are you trying to decide between REITs (real estate investment trusts) and physical rental properties? Today's video, my latest on dividend income and cash flow, approaches the topic of real estate investing from a variety of vantage points. As someone who works in the commercial real estate field and someone who has been investing in the stock market (for dividends and cash flow) for over 20 years, I share my personal perspectives.

In particular, I cover:
* Portfolio size required, if I were to invest in single family homes (and rent them out). With less than $200,000-$300,000 portfolio size, I personally would not consider individual rental properties (and would just stick with REITs).
* Concentration of risk and diversification. Buying just one or two single family homes (with the purpose of renting them out for passive income) can create quite the concentration of risk. By comparison, blue chip stocks (large REITs and other dividend-paying stocks) are very diversified in nature.
* Pros and cons of physical real estate.
* Ability to drive superior returns via physical real estate investments.
* Scrappy ways to get involved with real estate investments.
* Weighing the pros and cons of adding more complexity and overhead to one's life (physical real estate investments carry great responsibility and time commitment).

Related Video About Investing In REITs:

Disclaimer: I'm not a licensed investment advisor, and today's video is just for entertainment and fun. This video is NOT investment advice. Please talk to your licensed investment advisor before making any financial decisions.

All content on my YouTube channel is (c) Copyright IJL Productions LLC.

[michaelshustek]

REITs are a valuable resource. As the owner of one, you may feel my opinion is biased, but I simply found value in such organizations.

[_Half-A-Beas.T]

Great video. The reason I've stayed away from physical rentals is the work factor. Dealing with tenants and managing the property. Even if you hire a property manager you still need to check up on them.

[MiniTreasury]

You are very respectful AND knowledgeable! Love your channel. thank you for your hard work and in depth advice.

[Broteese]

The reason I have invested in two rental properties as well as stocks with dividends, is the fact that by leveraging I basically doubled my income in one year and can use those profits for dividend investments. Its riskier, but right now it has made me able to funnel ALOT more money into passive income sources as a result. And my investment portfolio went from like 30k-450k. That would take me 15 years if it werent for the real estate investments.

[VSSushant]

Hi Ian,
I got to know abt REITs very recently. And in India their is only one REIT listed. They are highly reputed group(Embassy & Blackstone). This got listed only some 6 months back and it's returns are very good(33%+) and they hold high quality real estate. Unfortunately, as per SEBI(Indian SEC) retailers can buy in lots of 200 only(currently it would be around 1000+ dollars). Have been researching abt reits and you have provided some very nice analysis.
Thank you

[MH]

I own div stocks and a rental property. The rental property involves work where a reit does not. That alone is a big reason to go with a reit especially since I don't think the rate of return is higher on an income property. Since I live in the rental property it actually works out quite well for me as the income covers utilities, property taxes, upkeep and so forth. An owner occupied unit makes a lot of sense and I'd go that way before I'd go with single house that I live in. Even though I think about buying another separate unit, I think I'd rather invest in a reit or div stocks because I don't have to do the maintenance, mowing, plowing, coordinate repairs and so forth.

[macabrew]

Also there are many cheap, high yield REITs.. but maybe only 1/20 are actually good, and have performed with or above the S&P with dividends taken into account.. AGNC is one for example, even if you bought at the high since inception you'd still be up 20% because of the great yield

[crownkingchris]

I appreciate the though you put into your videos and that your thoughts are clear and organized. I would love some future videos to also include showing various financial scenarios; similar to what you did with the yield on cost video and the Starbucks dividend growth scenario you did. Seeing how the numbers compound / snowball keeps me motivated in DGI.

[moneymanfernando]

I have been buying different REIT`S for about six months now and unfortunately as of this date ( Jan. 2018 ) the prices have been going down, down, down.

[InvestingBookSummaries]

If I had to choose between buying a REIT or buying an actual house and renting it out, I would go with the REIT more than 95% of the time. Even hiring someone to manage the properties for you is such a pain.

[zacktube]

I am modifying my new house to make it my own and it's taking forever. I could see an investment property as another full-time job.

[nreed]

I like REIT's. They're a great option for smaller investors and a way of getting access to high quality assets that you couldn't buy on your own. Syndications/partnerships in direct real estate ownership are great, but harder to get into. Diversification and liquidity are important considerations and REIT's are great for both of these.

[garry]

I suppose it depends on when you buy. I was able to buy a handful of homes with 20 percent down on each. The rent I charge is over double what the mortgage is. Since I have bought the homes they have gone up in value between 50 and 300 percent of the purchase price. Which means I am up from 150 to 1400 percent. Yes if my math is correct 1400 percent in 7 yrs. The home was purchased with 20k down on a 100k home which I wound up selling 7 yrs later for 300k. So my 20K turned into 220k. And that's not even counting the 6k per year I pocketed in rent after paying the mortgage payment. If you buy at the right time there is NO comparison! Oh also that's after paying a contractor here and there for minor repairs. Just buy a solid home and get a good tenant. Simple.

[btcbenny]

We have to factor in leverage. Buying a 1 million dollar house prob only costs you 200k down. If the 1 million rental can yield you just 5% net that's 25% net on your 200k. Buying an REIT, on the other hand, is diversified but you can only earn 5% dividend on your 200k.

[albertb]

I’ve always been curious if good value add returns can be obtained on dividends yields or buying right with timing. In RE I’ve. Compiled 25 doors roughly 12k cashflow a month and have spent 5 years doing so. This roughly equates to 20% cashflow only + yield on cost. Total return with appreciation, equity, depreciation, and amortization is much higher but I just focus on cashflow. Is that possible on stocks ? On RE it was lots of work to source and do the apartment rehabs upfront but nowadays I spent 30 mins a month manage and over see my property management.

[macabrew]

I don't feel like you can have too many stocks, especially without the cost of commissions to buy/sell in most brokers now :) Huge REIT fan btw, gonna be a good size of my portfolio.

[mauriceellis]

like your video over 5 multifamily is considered commercial. tax benefits are greater especially if anybody in your joint filing is a real estate professional almost unlimited writeoffs, lost can be braught foward many many years . consult a CPA or lawyer specialising in real estate..
I agree timing is key

[jonwoods]

Another great video, Ian! I really look forward to each and every one, and have viewed several of them many times over. The production quality is just fine, as far as I'm concerned. But I do believe you'll have greater things to come when you get your production studio up and running!
Also, if you aren't planning to already, you really should think about turning your content into educational/inspirational e-publishing material. You definitely have the knowledge, skill and ability to educate and inspire - especially for people trying to move from beginner to intermediate level of diy investing. I would definitely purchase such material! Thanks again for the work and passion you put into making these videos. They are all very helpful!

[reptilianskin]

Real estate is a great option for some. I’m in a market that is very expensive both to buy or rent in. I’m buying dividend stocks to increase my cash flow so that at some point my dividends will pay my rent or mortgage plus my total cost of living. So if I ever experience a job loss, I don’t have to worry how I’m going to pay the bills.

[inconvenientexistenlism]

Very surprised that you haven't mentioned any of your opinion on real estate crowdfunding like Fundrise.