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Why REITs Aren’t Easy

6 December 2013

It wasn’t that long ago that we told you about the declining popularity of REITs and about how investors are starting to turn more towards private lending. But just why is that? It’s because REITs have an allure of making investors big money, and sometimes that’s all investors can see. But just like stocks, not everyone in the REIT market makes big profits, and that’s the reason REITs aren’t that easy after all.

Just like the stock market, there’s a huge variety of REITs you can choose from. Because these a REIT is really just a company that bundles mortgages and then sells them on the stock market, lots of companies want to cash in on the potential profit. And you can bet that as an investor, some of that profit will be coming from you and the fees you’re paying to invest in that particular REIT. And because of that, there are lots of companies that offer lots of different REIT packages.

And just like the stock market, because there are so many REITs, not every one you invest in is going to make you money. It takes careful consideration, a look at distributable cash flow, debt, and occupancy rates, as well as much more analysis and research. It’s for this reason that many investors find, once they’re already invested in REITs, that they’re much more work than they anticipated. And unfortunately, that they’re not turning the profit on them that they thought they would be. Just like a stock, sometimes you can hit the jackpot, and sometimes you can just lose money.

It’s for all of these reasons that investing in private mortgages has started to overtake the popularity of REITs. When you provide the money for a mortgage, you already know the interest rate you’ll be making on that money, and even the exact date of when you’ll see return, as well as repayment of the whole principle. Investing in private mortgages after being disappointed with a REIT is taking your money off the stock market and putting it in a much safer place. One where it will actually work for you, instead of causing you stress about risk.

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