REITs vs. Commercial Investments

 March 9, 2021

By  Guy Gray

In 2019, we compared the differences between commercial real estate investments and residential real estate investments. Consider that article the 101 class. Today, we’ll be moving on to the 201 class by taking a look at real estate investment trust (REIT) investments and how they compare to traditional commercial investments. 

What’s the difference between real estate investment trusts and direct commercial real estate investing? Let’s get right into it and take a look at a few areas where these investments differ:

The Physical Nature of Properties

One of the biggest differences between REIT investments and commercial investments deals with the management of the physical property. For the latter, you have to manage the physical property and account for things like tenants, maintenance and so forth. With REIT investments, on the other hand, you can make investments without ever having to own or manage a physical property. REITs are corporations that pool the capital of different investors so there is lots of diversification and lower risk. Basically, REITs are more like mutual funds, while direct commercial investments are more like individual stocks or bank accounts.

Tax Breaks

There are more advantages when it comes to taxes with direct commercial real estate investments—compared to REITs at least. With physical properties, you can expect to qualify for tax breaks like management costs, maintenance fees, depreciation and more. Also, REIT dividends aren’t considered “qualified dividends” and are taxed at a higher rate.

Control and Decision-Making

Want more control over your return and decision-making? Direct commercial real estate has the advantage here, especially if you’re using the right CRE software to manage your portfolio. While you have to deal with more inconveniences and management, you ultimately have more control about decisions that directly impact ROI. REIT investments are dependent on market fluctuations and can be particularly volatile if it’s an individual REIT that focuses only on a certain property type or region. 

Ease of Transactions

There are additional differences, but the last one we’ll mention is the convenience of buying, selling, leasing and other transactions. Since many REITs are offered on exchanges (similar to the stock market), it’s easier to buy and sell your investments. With physical, direct commercial real estate investing, you can’t quickly sell your assets if you’re in a pinch or you identify another more lucrative investment opportunity.

If you’re interested in a tool that can help you get the most out of both your REIT investments and commercial investmentsrequest a demo of Quarem today.

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About the author 

Guy Gray

Guy Gray serves as Chief Operating Officer overseeing our technology and client services teams. He is responsible for guiding Quarem application development, networking and security, as well as new client implementations.

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