Why I Stopped Buying Real Estate To Buy REITs Instead

Summary

• I used to only invest in private real estate.
• Looking back, this was a mistake, and today I favor REITs in most cases.
• I present five reasons why I'm buying REITs and avoiding private real estate as much as possible.
• Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »

I come from a family of real estate entrepreneurs, and from a very early age, I have been touring investment properties and going to construction sites with my father.

As I grew up, I knew that I wanted to also become a real estate investor and so I studied accordingly, passed the CFA exams, completed two bachelor's degrees in real estate, and eventually landed a job in private equity. We managed hundreds of millions worth of property investments and it taught me a lot.

With this background, I was very well prepared to become a real estate investor, and so I did. I bought one property... a second... but eventually, I came to the conclusion that it wasn't worth it and stopped investing in private real estate.

Why is that?

I discovered REITs and came to the conclusion that they were better investments in most cases. I quit my private equity career to become a full-time REIT analyst, and that's what eventually landed me here on Seeking Alpha to discuss some of my investment ideas.

In today's article, I take a step back to present the five reasons why I stopped buying private properties to instead focus on REIT investing. If you are still undecided between the two, I hope that this article will help you gain a fuller picture to make your own decision.

Reason #1: REITs Deliver Better Investment Returns

Exceptions always exist, but on average, REITs have historically generated higher returns than private real estate.

According to NAREIT, REITs have outperformed on average by about 4% per year:

source

Another study conducted by Cambridge comes to the same conclusion:

source

There are two main reasons why REITs outperform private real estate:

1) They enjoy significant economies of scale. When you own 100s of properties, you enjoy savings on

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.