The pros and cons of REITs vs. being a landlord

On Behalf of | Mar 17, 2023 | Landlord And Creditor Services

Investors in Michigan and around the country seeking opportunities in the commercial real estate sector have traditionally chosen to buy buildings and then rent out the space, but real estate investment trusts have become more popular in recent years because they eliminate the need to deal with tenants and collect rent. REITs are a simpler commercial real estate investment vehicle and can offer healthy returns, but they do have some disadvantages.

The pros and cons of being a landlord

Becoming a commercial real estate landlord is attractive because it allows investors to earn money from rent and appreciation at the same time. People with high credit scores can also purchase commercial properties without spending much of their own money. However, landlords do not have easy lives. Maintaining a commercial building, dealing with tenants and collecting delinquent rent can be a full-time job, and not everybody is cut out for it. Companies that provide landlord services can be hired to take care of these tasks, but that adds expense.

The pros and cons of REITs

Buying REIT shares allows investors to reap the rewards of being a landlord without involving themselves in the day-to-day running of a commercial building. REITs provide investors with a diversified investment portfolio, which protects them against localized market fluctuations. Selling REIT shares is also a lot easier than finding a buyer for an office building. In return for these benefits, REIT investors cede control and accept lower returns.

Why not both?

REIT shares are easy to buy and sell and usually provide fairly good returns, which means investors who are interested in becoming landlords can place their money in them while they are looking for the right building. The performance of a REIT portfolio could also provide prospective landlords with useful information that could help them to identify commercial real estate investment opportunities.