Date: January 13, 2023
Diversification is the key to long term investment success. Real estate investments are a great way to diversify your portfolio, but there are two different ways to invest in the real estate market: private Real Estate Investment Trusts (REITs) and public REITs. Each has its advantages and disadvantages, so high-net-worth individuals need to understand the differences between the two before investing.
Public REITs
Public REITs are traded on stock exchanges, meaning that their shares can be bought and sold just like any other publicly traded security. This makes them easily accessible to investors, as anyone with access to a brokerage account can buy or sell shares. Additionally, since they’re traded on an exchange, they’re highly liquid—meaning you can easily convert your investment back into cash if needed without incurring much loss in value.
The downside of public REITs is that they generally have higher fees than private REITs. They also tend to be more volatile because they’re subject to stock market fluctuations – so while you may benefit from higher returns in bull markets, you could also take a hit during bear markets when prices go down. When investors are in risk-off mode they will often sell their public REITS leading them to drop in value. At a time when investors need the diversification, they often fail in that way.
Private REITs
Private REITs are not traded on an exchange, which means that there are more restriction in who can invest in them. As such, they tend to be less liquid than public REITs since it can be difficult for investors to find buyers for their shares should they decide to sell. However, this lack of liquidity often comes with lower fees than public REITs – making them attractive investments for those looking for long-term returns rather than short-term gains. The price of private REITS is based only on the underlying value of the real estate. It is not subject to the supply/demand pressure that you see with public REITS. This leads to better portfolio risk protection than you find with public REITS.
Conclusion
As investment advisors in Gilbert, Arizona, we recommend that all investors allocate to real estate. Ultimately, whether you choose a private or public REIT will depend on your individual goals and strategies as an investor. For those looking for short-term gains or who have limited amounts of capital to invest, public REITS may be the best option due to their liquidity and relative affordability compared to private ones. On the other hand, those with larger portfolios who are seeking long-term growth may want to consider investing in private REITs due to their lower fees and potential for higher returns over time. By understanding the pros and cons of each type of investment vehicle, high-net-worth individuals can make informed decisions about which option is best suited for their personal financial needs and goals. For more on diversification, please visit our website at www.wattsgwilliam.com.
Author:
David Watts
Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.
