Don’t be like everyone else, be yourself. Failing that, be like Uber and Airbnb.

Conventional wisdom might suggest investing in residential properties like houses, sectional title units, or apartments is a profitable long-term venture. However, before making any substantial financial commitments to fixed property it is important to consider how buy-to-let properties pose their own set of challenges and risks.

While investing in property is an important strategy when building an investment portfolio, it does not have to be in the form we may be used to. Real Estate Investment Trusts (REITs), (something we know a lot about at Reitway) present a unique property investment approach that offers several advantages over direct property ownership.

Exploring the Challenges of Property Ownership and the Benefits of REITs:

1. Liquidity

• REITs are traded on major stock exchanges, making them highly liquid compared to direct property investments. Buying and selling REIT unit shares is convenient, providing flexibility and easy access to funds.
• In contrast, physical property investments are much less liquid, requiring time to sell and potentially resulting in lower-than-expected prices, especially in slower markets.

2. Diversification

• Investing in REITs allows for portfolio diversification across various real estate asset types, reducing the risk of relying on a single property.
• Individual property buyers often struggle to diversify their investments effectively.

3. Lower Entry Costs vs Higher Entry Costs

• REITs typically have lower entry costs than direct property purchases, making real estate investment more accessible to investors.
• Buying property involves significant upfront expenses, such as deposits, transfer fees, stamp duty, legal fees, and renovations, which can deter many investors and impact overall returns.

4. Professional Management

• Managed by real estate experts, REITs handle property operations like acquisition, leasing, and management, offering investors professional oversight without the need for hands-on property management.
• Managing individual properties can be time-consuming for buyers.

5. Regular Income, Cost Averaging & Income Reinvestment

• REITs distribute a significant portion of their income as dividends, ensuring investors receive a steady stream of income that can be reinvested for compounding returns.
• Conversely, buying a property requires a substantial upfront financial commitment and ongoing borrowing costs, impacting overall returns for some time, typically until the bond is paid back.

6. Tax Benefits

• REITs often provide tax advantages, including deductions on dividends paid to shareholders, reducing the overall tax burden.
• Additionally, some REIT dividends may qualify for lower tax rates.
• Typically buy-to-let property income profits are liable for tax, and may increase your tax laibility as a tax payer.

7. Reduced Risk

• By investing in a diversified portfolio, REITs spread risk across multiple assets, minimizing the impact of individual property performance.
• Individual property buyers are limited to investing in single buildings.

8. No Property Management Hassles

• Investing in REITs eliminates day-to-day property management responsibilities like tenant issues, maintenance, and repairs, contrasting with the demands of being a landlord for buy-to-let properties.

9. Accessibility

• REITs offer individual investors access to high-quality commercial real estate that might otherwise be financially out of reach.
• Personal capital and borrowing capacity limit property investment options for individuals.

10. Market Volatility and Changes

• Property markets can be volatile, subject to value and income fluctuations influenced by economic conditions, interest rates, and market trends.
• Investing in a single property sector can pose risks, particularly in commercial properties post-Covid-19.

11. Void Periods

• Vacant periods can disrupt rental income for property owners, leading to financial strain due to ongoing expenses without corresponding revenue.

12. Tenant Risk

• Securing reliable tenants can be challenging, with potential issues like late payments, property damage, and eviction processes affecting cash flow and management costs.
• Depending on rental income can be a substantial risk for small property investors.

13. Depreciation and Maintenance Costs

• Properties require ongoing maintenance, and unexpected repairs can be costly, potentially impacting property value and returns over time.

Just like Uber built a taxi business without owning any cars, and AirBnb built a lodging business without owing any rooms, you can build a large property portfolio without owning any properties. Except in your case, you do technically own a portion of all of the properties, without any of the hassles for a fraction of the cost.

Real Estate Investment Trusts (REITs) provide a powerful alternative to direct property ownership, giving you access to a diverse range of real estate assets without the steep costs, management challenges, and risks that usually come with it.