The options are endless and sometimes tempting. A REIT is one of them, an acronym that stands for Real Estate Investment Trust. Hey, it’s real estate. That’s a good thing, right?
Not so fast. In the case of the REIT, you might as well be buying a stock and everyone out there in Creating Wealth land knows how fond we at Empowered Investor are NOT of stocks. The REIT is trumpeted as the real estate version of a mutual fund. They are required to distribute 90% of income back to investors.
But what is a REIT? In most cases it is a company that owns or operates income-producing real estate. Income properties! We like that, right? Yes, but not when you invest in them through a REIT. The major problem with a REIT is that it violates the third commandment of Jason’s Ten Commandments of Successful Investing™, namely, “Thou Shalt Maintain Control.” The REIT is like an anti-commandment. It’s the exact opposite of what should be. Pooling your money with other investors in the hands of a third party is a recipe for disaster.
Do we prefer our investments to resemble anything remotely disastrous? That would be no. With a REIT, you give up direct control of your investment. It’s a very short stretch indeed to imagine that a corporate administrator might be unethical, incompetent, or charge outrageous fees. Would we invest in a REIT? Not likely.
