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For anyone interested in investment diversification, real estate is one of the preferred holdings in addition to stock and bonds. However, many investors possess neither the cash nor the knowledge and interest to actually buy, sell, rent or manage real property. Such investment involves more than cash; it also requires in-depth market knowledge, and hands-on time, energy and effort.
Investment in a Real Estate Investment Trust (REIT) or a Real Estate Mutual Fund (REMF) are popular alternatives, with specific advantages that are attractive to small investors and to those who seek investment diversity.
While there are three types of Real Estate Investment Trust, Equity REITs are the most common. These entities own and manage revenue-generating property, including shopping malls, office and apartment buildings, hotels and specialty properties. Niche markets today include medical developments, senior and targeted healthcare communities, retirement developments, and multi-use developments, including live-work centers in urban environments.
An REIT may also generate income by purchasing or trading in mortgages and mortgage-backed securities, known as a Mortgage REIT, or through a combination of equity and mortgage holdings, termed a Hybrid REIT. Although shares may be traded publicly or sold privately, an REIT is bound by Internal Revenue Service rules to pay out most of its earnings to its investors. Although an IRS is treated as a corporation and must be managed by a board of directors or a group of trustees, it pays no corporate income tax.
Mutual funds, by definition and practice, pool investment funds to purchase stocks and bonds. Investors purchase shares or units based on the current net asset value (NAV) of the combined assets. Real Estate Mutual Funds invest solely in real estate-related stocks, REITs, or a combination of both. Investing in such a fund offers an investor a low-cost, relatively low-risk option to traditional real estate.
Transaction costs associated with investing in mutual funds are typically minimal, and there is a high probability that the funds will be professionally managed and researched, an advantage for most investors.
While an REIT only pays dividends, based on the number of shares an investor holds, the REMF carries the expectation of regular dividend payments as well as capital appreciation.
Because shares of both the REIT and REMF are readily traded, such investments are considered highly liquid, and carry minimal risk. They offer an excellent opportunity for the small or new investor to diversify into the world of real estate, and they are considered by some proponents to be a hedge against inflation. As home values and rental incomes climb, investment dividend payments are likely to increase.
The flip side is that as interest rates rise, corporate costs increase and profitability might be affected.
As with all investments, a decision will depend on personal circumstances, considered judgment, and careful comparison.
I am a real estate broker, property manager, and investor, located in Ann Arbor, Michigan. To each client, I bring close to a decade of experience in real estate, first as a real estate investor, then manager, and now love to share my experience and knowledge with property buyers and sellers as a real estate broker. Since attending the University of Michigan in 2005, I have lived in Ann Arbor ever since. My exceptional knowledge of the market as an investor and property manager provides a unique perspective and competitive advantage to my clients for selling and buying both residential and investment properties.
I have successfully managed investment properties in Ypsilanti and Kalamazoo and have conducted real estate transactions throughout southeast Michigan. Whether clients are looking for their first home, vacation homes, or the home of their dreams, I will be able to stay on top of the process, remove obstacles and make the real estate deals as pleasurable as possible. I enjoy working with people and finding ways to share a laugh or two in the process. I take pride in being available to my clients and being responsive to their needs.
In addition to my residential property expertise, and my multicultural background, I am capable of working with international investors and home buyers to make their international property purchases smoother and trouble-free. If you are interested in the acquisition of investment homes for your children while they attend the University of Michigan, as a property manager, investor, and broker, I will be able to help you make that reality come true.
I graduated from the University of Michigan and own and operate several businesses in Ann Arbor and Ypsilanti. In addition to my real estate experience, I am also a technology enthusiast and am always on the hunt to use technology and media to enhance the buying and selling experience.
If you are looking to make your first home purchase, or are trying to sell your home, give me a call and I can guide you through the services that I can offer you to help you start along the journey. I take great pride in my work and it would be an honor for me to represent you and your needs.
Yours truly, Vincent Zhang