JLM Blog | Real Estate: Direct vs Indirect InvestmentsReal Estate News, Updates, and Tips
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Article published on August 15, 2022.
Investing in property is one of the most intelligent financial decisions you could ever make, depending, of course, on the property that you’ll be getting. You can make many types of investments, and it can be overwhelming to find which one is the best.
When investing in real estate, you can choose between a direct and indirect investments.
Here’s precisely when they mean:
The goal of a direct investment is to have direct ownership of a property rather than acquiring common shares. This includes ownership, rental, or management of given property. The ‘investor’ of the property is also the owner who possesses the legal rights to the property. Investors can decide whether they have short or long term goals with regards to their property purchase.
Pros of Direct Investments
Great for any investor
The average person will be able to purchase a property once they acquire the necessary funds to do so. Purchasing a home is usually one of the biggest first time investments that some one will make. A homeowner can has multiple options with the property that they purchasing such as living in the property or they can also utilize the property for rentals.
This is very common for multifamily home purchases.
With the rental property, you’ll be able to get continuous cash flow as long as the property is not vacant. Profit from direct property investments usually are usually dependent on cash flow and renting out your property is a great way to acquire passive income.
Property ownership can get you many tax benefits and write-offs. For example, you get more tax benefits if you become the property manager of your own rental property.
Cons of Direct Investments
The downside of directly investing property it only gives you one asset to work with unlike other investments like stocks where you can purchase multiple assets to diversify your portfolio.
As an investor, it is best to diversify your investments as a hedge for things such as inflation, depreciation, and market volatility.
Indirect means investing in real estate without having to purchase the asset outright. If someone would want to diversify their portfolio and add real estate assets, they can simply purchase shares and not buy the entire property. Purchasing shares can usually be done through someone owns and manages the property:
Real Estate Investment Trust (REIT)
A REIT is a mutual fund of real estate holdings than can be purchased publicly or privately through exchanges.
A group of investors that if formed to manage a commercial property. In a nutshell, multiple investors have a certain amount of capital invested the property. This would make you a limited partner
Pros of Indirect Investments
Investing shares in asset-backed properties can have less risk than purchasing the entire property. But, it really depends on the risk management level of an investors portfolio.
Indirect property investors don’t need to worry about the physical property and maintenance. They also have less tax liabilities because they are not the sole owner of the property.
Cons of Indirect Investments
There is always a certain amount of risk when it comes to investing. As with direct properties, it is always best to diversify your portfolio in different asset classes so you can get the most return out of your investment.
Do you want to sell or acquire property?
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