REITs Vs. Lease Option Investments

citiy-731216_1280When searching for a profitable real estate investment, it is always a smart idea to research various options. This article will provide you a comparison between Real Estate Investment Trusts (REITs) and a lesser known strategy referred to as Lease Option or Rent to Own property investing. Both methods have the ability to earn investors good returns; however, they are completely different from each other. That being said, you need to know exactly what you are getting yourself into. In order to increase the probability of success, it is crucial for the investment to fit your personality.

Let us start out by explaining exactly what a lease option contract is. The titleholder of the property agrees to lease the asset to a tenant that has an option to purchase the property for a price that is agreed upon at the start of the contract. Typically, the tenant has the option to purchase at any time during the contract term. Another aspect of this type of structured deal is that a portion of the monthly rental payment is applied towards the buyer’s down payment only if they end up purchasing the property. With a lease option contract the tenant is responsible for all maintenance issues, making life easier for the investor or owner.

Lease option investing is similar to flipping properties. It is crucial for the investor to purchase the property at less than market value in order to guarantee a profit when the tenant exercises the purchase option. If the tenant fails to purchase the property, there should be plenty of cushion to either sell the property to someone else, or lease the property with an option to purchase to another party.

For people that prefer a more hands off approach, investing in REITs is the perfect real estate investment strategy. As the investor, you are purchasing stocks in large real estate management companies that specialize in purchasing, developing, managing, and maintaining multiple properties. These assets include apartment building, office buildings, hotels, warehouses, storage, shopping centers, and other large facilities. Typically, REIT stocks are traded on major stock exchanges such as the New York Stock Exchange (NYSE).

Investors do not need to concern themselves with issues such as locating properties to purchase, making monthly mortgage payments, maintaining and managing tenants, liability issues, among a plethora of other items that property owners deal with on a daily basis. Instead, they are leaving all of those tasks up to the management teams of the companies they are investing in. Liquidating the asset is as easy as picking up the phone, or pressing a few buttons on your computer, smartphone, or tablet. In addition, most REITs pay dividends that add up over time.

We believe that any good real estate investment portfolio should include multiple REITs. Having said that, if lease option property investing sounds like something that you would enjoy, then try adding a deal or two to your overall strategy.

Written by GilverBook Team

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