Why a REIT Is Better Than Unlisted Real Estate Properties

Why a REIT Is Better Than Unlisted Real Estate Properties

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To become (or remain) a savvy real estate investor, it’s critical to stay on top of the market trends. With a national real estate market as vibrant as Canada’s, learning to make the most of your investment dollars is a must. Two trends are becoming more and more popular as the month’s progress. While they may not appear to be linked on the surface, both deal in the same types of properties. Only one is truly worth your time and effort.

Table of Contents - Why a REIT Is Better Than Unlisted Real Estate Properties

The beginner’s entry point

Once they’ve done their homework and made some connections within the community, novices with a limited investment budget attack the industry in one of two ways.

The first option is to invest in a REIT. Provided you do your homework and invest in an organization with a reputation for quality, REITs are reasonably stable bets in the real estate market. They’re also a hands-off investment. Shareholders can put their money down and then collect dividends while planning the next step in building their portfolio.

The second, more active option is real estate wholesaling. When a buyer is looking for a home or a seller is looking to offload their house, a real estate wholesaler acts as an intermediary to connect the two parties. Real estate wholesaling can prove lucrative for beginners with a pipeline into a variety of pocket listings. And, with the number of pocket listings growing daily, the temptation can be strong to jump in.

Meet the pocket listing

Traditionally, when a seller wants to “put their property on the market” that means publicly listing their home or building on the MLS (multiple listing services). In these cases, the goal is to ensure that their property is visible to as many potential buyers as possible. The properties on the MLS aren’t the only viable properties. There are also those homes or buildings that go unlisted. These so-called “pocket listings” have been a subset of the housing market for years, but that’s changing.

In the past, pocket listings were considered the domain of the rich, powerful and famous. They seemed meant for those people who didn’t necessarily want to sell their property to just anyone: politicians looking to make a peaceful transition; celebrities who didn’t want fans running up to them; wealthy people who preferred to avoid lookie-loos showing up with no intention of buying. In short, a pocket listing was meant to increase the seller’s privacy.

Thanks to the shortage of homes in markets across Canada, the pocket listing is expanding its reach. As home prices around the country continue to skyrocket, the number of unlisted real estate properties continues to grow. What’s more, the cost of homes featured in pocket listings continues to drop. No longer are pocket listings dominated by the rich; they’re open to everyone … provided you know where to find them.

And now, the REIT

If you’re not familiar with the real estate investment trust (REIT), you’re missing out on one of the most reliable and accessible ways to invest. Think about the REIT as any other investment trust. That is, individuals can buy trust units (aka, shares of stock) in their chosen REIT. Then, they can sit back while the financial experts who operate said REIT purchase, build and run the day-to-day of a variety of commercial and residential real estate enterprises.

Though subject to the volatility of the market’s fluctuations, buyers of REITs sing their praises. Why? REITs can offer impressive ROI for those willing to lock in their investment with a talented group of trust managers. To remain legally classified as a REIT, organizations must return 90 percent of their profits to investors in the form of dividends. After paying their employees handsomely, most REITs devote the money they don’t return to investing in more property.

If you’re willing to be patient, and you don’t mind diminished payout compared to a pocket listing, then REITs are a relatively low-risk investment that requires zero effort on your part once you purchase your trust units. That’s not the only reason to put your money in the hands of a REIT over unlisted real estate property.

Crowdfunding is harder

Some investors might try to stake their claim in the world of pocket listings the way, so many independent investors do: by attempting to crowdfund the resources they need to get started. When you’re working on a publicly-listed home, it’s much easier to get potential investors interested in the property. Thorough investors can check your numbers and investigate your action plan independently of you. They can also verify that the home being considered is legitimately for sale.

Pocket listings offer nowhere near the crowdfunding security of a publicly-traded property. When intelligent investors (i.e., those with larger pocketbooks) cannot verify what you’re saying independently, they are less likely to put down the money required to get your operation off the ground.

Unlisted properties aren’t always honest

Sometimes, a pocket listing is a straightforward transaction between buyer and seller. However, there are instances when a pocket listing is more strategy than a bona fide offer. Sometimes, a seller is merely price-testing their property at an absurdly high price point. That typically indicates that there will be very little wiggle room on the price. It also suggests that the owner won’t be exactly motivated to get out of the home, even if a deal is struck.

In other cases, realtors will shop around a pocket listing while the homeowner preps the house to be listed on the MLS. The idea here is to determine what a good starting price for the home should be when made available to the public. It’s not to secure a deal.

Skip the hassle

If you’re a veteran investor with the capital to cover the investment in an unlisted real estate property, it could prove a smart move (provided you’re confident you can connect a buyer). However, beginners should skip the pocket listings and focus on watching your REIT investment grow while building up the funds to move onto bigger and better things.

How Do REITs Work?


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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.