12/11/2018
Active Versus Passive Real Estate Investing: Which Is Right For You?
Forbes CommunityVoice
Connecting expert communities to the Forbes audience.
What is This?
1,078 views | Nov 21, 2018, 08:30am
Active Versus Passive Real Estate Investing: Which Is Right For You? Abhi Golhar CommunityVoice Forbes Real Estate Council CommunityVoice Real Estate
POST WRITTEN BY
Abhi Golhar Abhi is Chief Investment OfďŹ cer of Summit & Crowne and a 2x nationally-syndicated radio host on The Wall Street Business Network.
Getty
GETTY
https://www.forbes.com/sites/forbesrealestatecouncil/2018/11/21/active-versus-passive-real-estate-investing-which-is-right-for-you/#3a1c78467707
1/4
12/11/2018
Active Versus Passive Real Estate Investing: Which Is Right For You?
Real estate as an investment has become a hot topic over the past few years. The many fix-and-flip TV shows have something to do with it. Rental home investing has always been superior in many ways to holding stocks and bonds. So, what's right for you — active real estate investing or passive? Because the active side has been so popularly represented in the media, a look at passive real estate investment first is in order. Most people are very familiar with mutual funds. They offer the ability to invest small amounts of money over time in a basket of stocks to diversify for risk reduction. A real estate investment trust, or REIT, is like a mutual fund in that it spreads out risk by investing in many real estate assets. There are three major types: • Equity REIT: This REIT invests in ownership of commercial real estate, such as shopping centers, office complexes, etc. • Mortgage REIT: This one invests in the mortgages that finance the properties. • Hybrid REIT: A combination of equity and mortgage assets. Any of these types can focus on one type of property, such as medical facilities or office complexes. The major difference between REITs and mutual funds is how they're traded.
YOU MAY ALSO LIKE
A mutual fund investment requires buying and selling within the fund. A REIT is traded like shares on the open market.
https://www.forbes.com/sites/forbesrealestatecouncil/2018/11/21/active-versus-passive-real-estate-investing-which-is-right-for-you/#3a1c78467707
2/4
12/11/2018
Active Versus Passive Real Estate Investing: Which Is Right For You?
REITs were created by Congress to help small investors become involved in real estate investment through share ownership like mutual funds, but also allowing open market trading, which can lower management costs to increase return on investment. REITs are required by law to pay out at least 90% of profits each year to investors as a "pass-through" entity. This means that the earnings pass through to the investor as regular income for income tax purposes. This makes the investment better in a retirement account to avoid the taxation as the investment grows. REITs allow the small investor to buy shares as they accumulate cash to do so, as well as to sell and reinvest the proceeds as they desire. The investor in an equity or hybrid REIT will participate in the profits from rents as well as the appreciation in value over time of the properties held. The Passive Versus Active Decision You can buy your own rental homes over time, and you can even move on to commercial real estate investment through multifamily or small commercial property ownership. However, if you want to invest in large commercial properties like shopping centers, office complexes and high-rise projects, you can start right away with even small amounts of cash by buying shares in a REIT. If you want more control and higher returns, buying your own rental homes is a better approach. You'll have an insured investment that responds differently than stocks to interest rate and inflation risk. You can build cash flow and appreciation value over time for retirement. You are in charge and make all the decisions. If you really don't like the idea of being a landlord, you can structure your purchases and rental income to fund professional management for as little as 8% to 10% of rental income. Generally, over the long term, you'll do better with rental property ownership on your own if you learn how to invest wisely.
https://www.forbes.com/sites/forbesrealestatecouncil/2018/11/21/active-versus-passive-real-estate-investing-which-is-right-for-you/#3a1c78467707
3/4
12/11/2018
Active Versus Passive Real Estate Investing: Which Is Right For You?
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qu a lify ?
Abhi is Chief Investment Officer of Summit & Crowne and a 2x nationallysyndicated radio host on The Wall Street Business Network.
https://www.forbes.com/sites/forbesrealestatecouncil/2018/11/21/active-versus-passive-real-estate-investing-which-is-right-for-you/#3a1c78467707
4/4