buy property or real estate company shares?

[margaretcowan]

Someone, who doesn`t benefit from what type of investments I make, suggested I buy shares of high quality real estate companies instead of the actual real estate.

I said I`d made far more money in real estate investing than I ever had in stocks and besides that, you had leverage working for you in buying properties.

He said leverage was built into the share prices of the real estate companies and I`d avoid hassles and risks with tenants, rental markets etc.

What are your opinions?

 

[Dan_Eisenhauer]

Thomas would probably make the same agrument, Margaret, as that is what his companies do.

When you own your own properties, you do not have to pay management fees on everything you do. I am not suggesting Thomas does this. But, I have personal knowledge of one company that flipped properties like toys so that it built up the principals` own incomes, through it various fees, at the expense of the investors. (That company went belly up, I believe, because the excessive fees could not be sustained.) You have absolute control when it is your own investment.

I have not seriously looked at investing through another corp, mostly because this is what I do for a living. I have the time and inclination to look for good deals. I believe that I probably get a higher ROI that I will investing through someone else`s corporation. My guess is that you and I are very similar in that regard.

Investment corporations, IMHO, are for those who are more hands off, who do not understand the business, and who do not want to take the time to get to know it, or to go looking for good deals. They prefer instead to let others control their destiny and money. This is great for some people, but I doubt it is for most REIN members.

I am going to be interested to read Thomas` take on this.

 

[Thomas Beyer]

Many folks will do far better going on their own .. with their own money and their own considerable time to find deals, get the mortgage and manage it for years and risk that you may lose more than you invest .. many others will do better with private or publicly traded real estate firms or syndications ..



Strictly speaking, if you invest in a syndication (or limited partnership) you do not buy shares, you become a co-owner with a limited liability. These are not shares.



Consider the EFFORT, TIME, RISK and EXPERTISE required and the execution of this LONG LIST of tasks here that someone has to do .. and get compensated for:



http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html



Some like to do that .. and some do not .. so consider if you are willing and able to do these sometimes very time consuming, possibly risky and not always enjoyable tasks yourself !



In real estate, if you do all yourself the risk is that you could lose more than you invest (something that is not possible in a syndication) but the reward is that you also get all the upside. So: more upside in return for more risk, $s, time and expertise required !

 

[Nir]

Same economic rule always works: HIGHER RISK = HIGHER EXPECTED PROFIT!
No matter how you look at it, if you do it yourself you take higher risk and you are expected to make more money - the average RE investor buying his own properties makes more money per dollar invested than investors buying through another company per dollar invested.

Re: "leverage was built into the share prices of the real estate companies and I`d avoid hassles and risks with tenants, rental markets etc." Wrong. Unfortunately, there are no magics here: if you don`t have to deal with tenants it means you take less risk or spend less time hence expected to make less money!

so it depends on your personality, how risk averter you are, no wrong or right answer here. Cheers.

 

[margaretcowan]

Thanks for all your insights which really help me to clarify this issue.

So far, I`ve done all the legwork, finding my own properties, supervising property managers etc. Like all of you, I know only too well the long list of tasks to be done and risks run. And I`ll continue to do so!

Margaret
www.italycookingschools.com

 

[Thomas Beyer]

QUOTE (investmart @ May 24 2009, 10:14 PM) ... - the average RE investor buying his own properties makes more money per dollar invested that investors buying through another company per dollar invested.
probably true for smaller amounts up to perhaps $50,000 .. and probably true if you follow REIN systems and are dilligent and work hard at it !

But consider that area diversification or asset class diversification is a huge benefit .. or using RRSP $s which are hard to use yourself !

Also: to buy an average 40 suiter in Edmonton @ $100,000/door, i.e. $4M you need about $1.1 to $1.4M cash these days .. which usually exceeds the capacity of one individual. Thus co-owing a larger asset or multiple assets with others is worthy a consideration .. and can exceed owning a small townhouse self-managed with all associated management issues .. especially when adding a value for time invested ! The bigger the asset, the more rent per $ of real estate purchased usually and the lower the management costs to manage .. so what is better: 100% of a small deal .. or 1/27th of an excellent larger deal ?

Consider also: return on cash .. and return on time invested !

 

[housingrental]

Thomas has made a great post and highlights something I`d like to add....

I`ve seen in local market and can only guess this has happened some other places too that there is a good chunk of purchases of smaller / cheaper units being purchased by investors at a premium price to rent ...so a lot of the lower priced townhouses and condo`s seemed to have had a boost from non owner demand... What will happen to these types of properties when investor demand becomes muted? Relative price devaluation vs other properties ?

Is there and has there been a historic downside in real estate markets to this class of property a number years after spikes in investor interest in smaller markets ? Anyone have any data or even antidotes supporting / arguing against this?

I have some concern of certain condo`s / low quality plex`s in Kitchener of this...
As another segment as an example - run down, poorly rented or vacant student property in Waterloo (or plex / converted house in Kitchener) six years ago there was a really small market for them - hence relatively larger discounts in price to turn key properties.. It`s now much more difficult to find decent non-turn key purchases at as much of a discount.. lots more investors looking at them... What will the impact be when KWC (or choose a region like it - ESPECIALLY SMALLER CENTERS - THIS WILL EFFECT MAGNIFIED IN A TOWN OF ONLY 50K, ETC..)has a relative reduction in investment demand?

Thanks





QUOTE (thomasbeyer2000 @ May 25 2009, 11:41 PM) probably true for smaller amounts up to perhaps $50,000 .. and probably true if you follow REIN systems and are dilligent and work hard at it !

But consider that area diversification or asset class diversification is a huge benefit .. or using RRSP $s which are hard to use yourself !

Also: to buy an average 40 suiter in Edmonton @ $100,000/door, i.e. $4M you need about $1.1 to $1.4M cash these days .. which usually exceeds the capacity of one individual. Thus co-owing a larger asset or multiple assets with others is worthy a consideration .. and can exceed owning a small townhouse self-managed with all associated management issues .. especially when adding a value for time invested ! The bigger the asset, the more rent per $ of real estate purchased usually and the lower the management costs to manage .. so what is better: 100% of a small deal .. or 1/27th of an excellent larger deal ?

Consider also: return on cash .. and return on time invested !

 

[freemanyee]

QUOTE (margaretcowan @ May 24 2009, 01:47 PM) Someone, who doesn`t benefit from what type of investments I make, suggested I buy shares of high quality real estate companies instead of the actual real estate.

He said leverage was built into the share prices of the real estate companies and I`d avoid hassles and risks with tenants, rental markets etc.


Hi Margaret,

Buying publicly traded shares in a real estate company exposes you to general stock market risk and volatility. Yes, the leverage is built in. You avoid property management hassles, and there is diversification across numerous properties.

Direct property investment exposes you to the risk of what happens to your one specific property, and of course all the headaches.

After being involved in various aspects of real estate full time for 18 years, I`ve grown to prefer investing in syndicates that add value to the underlying real estate, and are not publicly traded. It`s in-between the above two options. No hassles. No reliance on the stock market. Easy to diversify across managers, property times, and location. RRSP eligible.

 

[JulieHoffman]

QUOTE (margaretcowan @ May 24 2009, 02:47 PM) Someone, who doesn`t benefit from what type of investments I make, suggested I buy shares of high quality real estate companies instead of the actual real estate.

I said I`d made far more money in real estate investing than I ever had in stocks and besides that, you had leverage working for you in buying properties.

He said leverage was built into the share prices of the real estate companies and I`d avoid hassles and risks with tenants, rental markets etc.

What are your opinions?

 

[JulieHoffman]

Hi there. Julie Hoffman here.

I prefer owning the property. It is more of a hassle. But the rewards are far greater. Investing with a real estate company would be more risky in my opinion because what happens if the companyis run poorly? I like to be in control of the investment. yes, it comes with the challenges of tenants and lawyers and lawns. But it is YOURS. Plus, the experience of owning property is as or more valuable to me than any University education. I know. I have both (University education and Real Estate University education).

Good luck!