Advantage and Disadvantage of Real Estate Investments

Advantages: —When buying single family real estate, you can do one unit at a time….

Advantages:
—When buying single family real estate, you can do one unit at a time.
— Real estate investment can be good business experience for those who are not necessarily business oriented.
— In order to qualify as a real estate investment trust (REIT) for tax purposes, a company must return at least 90% of earnings to its shareholders in the form of dividends. Because of this, the average REIT boasts a roughly plus-6% annual dividend yield.
— REITs aren’t as highly correlated with the major indices as most industries are. As such, they may provide your portfolio with some much-needed diversification and should help to smooth out your overall returns, particularly during market downturns.
— REITs own hard, tangible assets, such as land and buildings, and often sign their tenants to long-term lease contracts. Because of this, REITs tend to be some of the most stable companies on the market.

Disadvantages:
— Generally requires more “hands-on” involvement than other investment options.
— Maintenance and repairs take time, money or both. (And always seem to take more of both than planned).
— You have increased exposure, both legal and financial.
— Your cash is tied up in “bricks and mortar” and is not immediately accessible.
— Because they can only reinvest up to 10% of their annual profits back into their core business lines each year, most REITs tend to grow at slower clip than the average stock on Wall Street.
— Although the business tends to be a fairly stable one, REITs are not without risk. For example, their dividend payments are not guaranteed and the real estate market is prone to cyclical downturns.
— Since they already enjoy a unique tax-advantaged status versus other firms (more specifically, they are allowed to deduct the dividends they pay out from their taxable income), from an investor’s perspective, roughly 2/3 of all dividends paid by REITs do not qualify for the new lower 15% tax rate implemented by congress last year. By contrast, the vast majority dividends paid by non-REITs are taxed at this new low rate.