REIT (Real Estate Investment Fund) and a Direct Assisted Living Property Investment. What is the difference?

We have had questions recently regarding the differences between the two as they are being connected, when they are in fact, two completely different ways of investing in property.

Below, we summarise the difference and the pros and cons of each:

REITs:

Structure: A REIT is a company that owns, operates, or finances income-generating real estate. It allows individual investors to buy shares in commercial real estate portfolios.

Liquidity: REITs are traded on major stock exchanges, making them more liquid compared to direct property investments. You can buy and sell shares easily, much like you would with stocks.

Diversification: By investing in a REIT, you gain exposure to a diversified portfolio of properties, which can help spread risk.

Management: REITs are professionally managed, so you don't need to worry about the day-to-day management of the properties.

Income: REITs typically pay out a sizeable portion of their income as dividends, providing a steady income stream to investors.

Direct Property Investment:

Ownership: When you invest directly in property, you own the physical real estate. This could be residential, commercial, or industrial property.

Control: You have full control over the property, including decisions about tenants, maintenance, and improvements. This can be both an advantage and a responsibility.

Liquidity: Direct property investments are less liquid. Selling real estate can take time and often involves significant transaction costs.

Income & Appreciation: You can earn rental income from tenants and potentially benefit from property value appreciation over time. However, income and appreciation can be subject to market fluctuations.

Leverage: Investors often use financing to purchase property, which can amplify gains but also increase risk.

Key Takeaways:

• REITs offer more liquidity, diversification, and professional management but less control.

• Direct Property Investment provides full ownership and control but requires more hands-on management and involves lower liquidity.

Both options have their pros and cons, so the right choice depends on your investment goals, risk tolerance, and level of involvement you want to have.

Pros and Cons:

REITs:

Pros:

• Liquidity: Easily bought and sold on stock exchanges, offering more flexibility.

• Diversification: Exposure to a variety of properties, reducing risk.

• Professional Management: No need for hands-on property management.

• Steady Income: Regular dividends, often higher than stocks.

• Lower Entry Cost: Invest with smaller amounts compared to buying property.

Cons:

• Market Volatility: Subject to stock market fluctuations.

• Fees: Management and administrative fees can reduce returns.

• Less Control: Limited influence over specific properties.

• Taxation: Dividends can be taxed at higher rates than long-term capital gains.

Direct Property Investment:

Pros:

• Full Ownership: Complete control over the property and decisions.

• Income Potential: Rental income and potential property value appreciation.

• Leverage: Use of financing can amplify returns.

• Tax Benefits: Potential tax deductions on mortgage interest, property taxes, and depreciation.

Cons:

• Liquidity: Selling property can take time and involve high transaction costs.

• Management Responsibilities: Requires active involvement in maintenance, tenant issues, and other management tasks.

• Capital Requirement: Significant initial investment and ongoing expenses.

• Market Risks: Property values can fluctuate, and vacancies can impact rental income.

Both options have their advantages and disadvantages, so the best choice depends on your investment goals, risk tolerance, and how much involvement you want to have. There have been many cases recently where REIT funds have failed with investors losing significant sums of money. These REIT investments bear no relation whatsoever to assisted living property investments.

Buying a property directly that has an assisted living arrangement with a housing association attached to it can take away many of the risks of investing in property directly. Income that is paid by the housing association regardless of occupancy, increases in that rental income during the long-term contract, full repairing leases (FRL) means there are no maintenance or dilapidations costs. Simply put, buying a property with an assisted living tenancy in place negates many of the the cons mentioned above, making this a much more attractive attractive option when considering investing in property. For more details of this, read out Expert Brief.

To find out more about investing directly into property that has an assisted living contract in place, follows this link here

If you would like to view the latest opportunities, then please click here