Tag: REITs

  • Financial Markets Outlook Q4 2022 – Thoughts on Late September/Early October Bear Market Rally

    As the sell-off of stocks intensified into late September 2022, the S&P 500 lost all gains from the previous calendar year in September 2021. Coupled with an annual slump of 24% – the lowest since November 2020 – many were quick to point out the likelihood of a short-term bear market rally. This wasn’t (and isn’t) unjustified at all. During inflationary periods, as we entered this year by definition after two consecutive quarters of negative GDP growth, current stock market trends seemed to point to a classic “bottoming out”. An asset that has “bottomed out” reached its low point and could be in the early stages of trending upward. That’s the real question most investors are asking. Given all the global financial market dynamics that have been putting downward pressure on prices, are they ready to rebound? Will it be a short-term bear market? Will there be any noticeable rebound at all? What are the chances of a long-term bear market cycle? These are all questions investors are keen on getting more insight into daily.

    How Are Financial Markets Looking for the Remainder of Q4 2022?

    Shaky and unpredictable, at best. Specifically looking back at the S&P 500 trends, October, like September, tends to be a comparatively volatile month. This is coming off a year where more than half the trading days saw movements above or below 1%, indicating high general volatility.

    Before we get to the Fed policy, let’s quickly mention something many people are overlooking; current problems plaguing the UK. When we’re talking about the general trend of global financial markets, the US and UK generally follow similar patterns. In 2008, when the US recession hit, did the UK not feel the impact too? Ominously, the UK has already been in recession for a full year. Furthermore, S&P Global is predicting a “tough winter” for EU markets. Add that to the ongoing currency crises the GBP and EUR are currently experiencing and one would not be out of line at all to believe that the UK, as well as struggling countries in the EU, will fall into an even deeper recession. Surely – if that were to happen – it would obviously not bode well for US financial markets.

    But more realistically, actions taken by the Fed regarding inflationary concerns are what investors are eyeing more closely. Let’s take a deeper look at the Fed’s policy to combat inflation and how that’s impacting financial markets.

    The Fed’s Continuously Shifting Narrative on Inflation

    It’s important to first point out the Fed’s inflation narrative and, accordingly, their policy has shifted dramatically the past year. In fact, just last year Fed officials said inflation “wouldn’t be a problem”. Shortly later, the Fed promised us it would be “transitory” inflation. Now, they’re shifting to a “soft landing” inflation for the economy, amidst hiked up rates and economic downturn. As evidence of the deflationary attempts being rejected mounts, the Fed will undoubtably continue to move the bar.

    Why is that concerning for financial markets and moreover, market participants? Generally – intuitively, this should be especially true during times of economic uncertainty – investors often look to the Fed for guidance. Meaning, the majority of market participants will react to news from the Fed in real time. Even more specifically, they’ll take a bearish or bullish position based on what the Fed is saying at that time. David Schassler, Head of Quantitative Investment Solutions for VanEck, noted the same.

    “Market participants have been slow to catch up with the party line — and that’s reflected in the wild volatility. The market has failed to recognize the threat of inflation. Unfortunately, we think the idea of a soft landing is a bit of a fairy tale, and investors can expect a lot more volatility”.
    -David Schassler, VanEck Investments
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    But what’s more concerning is that even the Fed knows, for deflation to be successful, there also has to be a drop in demand. It doesn’t appear, nor is anyone really reporting, that there is any drop in demand. That’s starting to have – quite significant at that – ramifications on the global supply chain. Regardless of the reason – it could be the “COVID-10 lockdowns” J.P. Morgan hypothesized – at this point we know we are heading towards a global supply chain “crisis”. On top of a potentially botched deflation, we could see increased – rather than decreased – demand meet supply shortages, which would equal very rapid, upward prices until demand swings back down. Factoring back in how shaky the global economy looks at present, I think it’s extremely difficult to confidently say we’re definitely not going to have a financial crisis-like recession sometime in 2023. As many have said, time will tell.

    Conclusion for Q4 2022

    Concisely, we’re likely entering even darker waters than we’ve been in. That goes for capital markets, equities, indices, and related securities. Savvy investors will start looking at alternative investment products, while at-risk assets continue to have a negative long-term outlook. During times of financial uncertainty, investments in real estate (physical assets, more broadly) are usually a better value risk. High-value commodities, like gold, are known to do well in recessions (no, not Blockchain technology). High-value commodities such as gold in general are a quintessential hedge against a deflating dollar (USD) value.

    While we want to make it abundantly clear if there is a bear market, we expect it to be a short-term bounce back. To reiterate, the long-term macroeconomic outlook right now looks bleak. However, we also don’t want to give the incorrect impression that we are predicting a 2008-like financial collapse. Many have speculated that today’s CDOs are the mid-late 2000’s MBS products that led to the widespread 2008 financial collapse, however the comparison is a false equivalency.

    The safeguards we’ve put in place since 2008 prevent the kind of collapse we witnessed during that time. We have new volatility ratios that dual-acting (depository/investment) banks must strictly maintain. We have new regulatory reporting and compliance procedures banks have entire departments of staff dedicated to. The biggest investment banks in the world have literally thousands of dedicated employees specifically for regulatory reporting and compliance projects. My genuine belief is most active market observers understand we’re smart enough to learn from 2008 and avoid a repeat.

    However – needless to say – we’re still imperfect. With the way the global financial system now operates, there can only be winners if there are also losers. That dynamic is becoming more apparent at an upward trajectory. The biggest winners are becoming bigger (wealthier) and the biggest losers are becoming poorer. Interestingly, according to Fox, the last few recessions have statistically benefitted the “rich of the rich”.

  • Liquidity for India’s REIT Market to Improve Based on Revised SEBI Norms

    As we’ve highlighted before, real estate is by far the biggest asset class in the world. A short time back, there was a relaxation in investment norms and real estate investment trusts by the Securities and Exchange Board of India (SEBI). Real estate investment companies directly impacted praised SEBI’s initiative (Nandy, MINT). Specifically, they were grateful SEBI took a proactive approach to address a growing, local real estate market problem (Nandy, MINT). Typically, when looking at financial markets regulated by a government’s central compliance department, it’s very rare to see them proactively intervene with the intent of improving liquidity conditions for market participants. Aside from major global economic catastrophes, which always require a unique centralized response, regulators are thought of as “watchdogs”. Here, a regulator intervened to create opportunities for investors to get simpler, quicker access to larger sums of cash. 

    Indian REITS are expecting to bring in more retail investors and encourage more public listings in the future. SEBI recently revised the minimum subscription and trading lot for publicly issued REITS and infrastructure investment trusts (InvITs). with the minimum application value to be brought down from ₹50,000 now to a range of Rs.10,000-15,000 and the revised trading lot shall be of one unit.

    Support for SEBI Initiative from Major Indian REIT Investment Manager and CEO

    “We welcome SEBI’s regulation to reduce the minimum application value from ₹50,000 to Rs. 10,000-15,000, and trading lot to one unit. The earlier ₹50,000 cap restricted participation to only a certain set of investors. We believe that this amendment makes investment in REITs at par with other equity options in India. Reduction in minimum application amount will further bring in more investors thus improving the liquidity in REITs”.

    – Vinod Rohira, CEO, Mindspace Business Parks REIT

    In late 2020, it was first reported that SEBI was considering opening up REITs and InvITs to small investors by lowering the minimum trading lot size of REIT units from ₹50,000 to the value of just a single unit, much like how stocks are traded.

    Presently, there are just three publicly listed office REITs in the country – Embassy REIT, Mindspace Business Parks REIT, and the most recently listed Brookfield India REIT (Yadav, MINT).

    “We commend this proactive initiative by the regulator to reduce the trading lots of both REITs and InVITs. Embassy REIT’s listing in 2020, coupled with our strong and resilient performance since then, has paved the way for Indian REITs to evolve a mainstream asset class. With approximately $2 billion of primary REIT equity having listed in India in the last two years, leading global and domestic asset managers and growing numbers of retail holders now form the foundation of REIT unit holder registers. The reduction in lot size will increase liquidity for the entire REIT market, enable REITs to be included into benchmark domestic indices and allow greater participation from newer pools of institutional and retail investors.”

    – Michael Holland, CEO, Embassy REIT

    Impact to CRE Investing in India

    With India being on every investor’s radar as a country with potential lucrative returns, this should be welcome news. It’s also clear both Vinod and Michael, CEOs of two-thirds of India’s publicly listed REITs, echo each other’s statements. Revisions and relaxation to SEBI norms will improve liquidity conditions for REITs. This should encourage foreign investment and furthermore, the kind of investment India wants to see an increase in (Yadav, MINT).

    India has steadily been growing in CRE investment, something they telegraphed they would try to do. In India, CRE has grown at a 16 percent compound annual growth rate (CAGR) over the last five years. India was one of the few countries who avoided significant CRE investment decline resulting from COVID-19 (Sinha, Financial Express). All-in-all, while India’s real estate investment market (commercial or residential) obviously can’t be compared to the United States, the numbers paint a clear picture. The most influential Indian industry executives double down on what the numbers show. The aforementioned actions recently taken by SEBI will only continue that trajectory. How quickly India’s CRE market specifically will grow is definitely debatable, but for now there’s no doubt, investment is increasing. Again, SEBI altering norms to improve liquidity conditions for Indian REITs will continue to attract increasing investment to India.

  • Liquidity for India’s REIT Market to Improve Based on Revised SEBI Norms

    As we’ve highlighted before, real estate is by far the biggest asset class in the world. A short time back, there was a relaxation in investment norms and real estate investment trusts by the Securities and Exchange Board of India (SEBI). Real estate investment companies directly impacted praised SEBI’s initiative (Nandy, MINT). Specifically, they were grateful SEBI took a proactive approach to address a growing, local real estate market problem (Nandy, MINT). Typically, when looking at financial markets regulated by a government’s central compliance department, it’s very rare to see them proactively intervene with the intent of improving liquidity conditions for market participants. Aside from major global economic catastrophes, which always require a unique centralized response, regulators are thought of as “watchdogs”. Here, a regulator intervened to create opportunities for investors to get simpler, quicker access to larger sums of cash. 

    Indian REITS are expecting to bring in more retail investors and encourage more public listings in the future. SEBI recently revised the minimum subscription and trading lot for publicly issued REITS and infrastructure investment trusts (InvITs). with the minimum application value to be brought down from ₹50,000 now to a range of Rs.10,000-15,000 and the revised trading lot shall be of one unit.

    Support for SEBI Initiative from Major Indian REIT Investment Manager and CEO

    “We welcome SEBI’s regulation to reduce the minimum application value from ₹50,000 to Rs. 10,000-15,000, and trading lot to one unit. The earlier ₹50,000 cap restricted participation to only a certain set of investors. We believe that this amendment makes investment in REITs at par with other equity options in India. Reduction in minimum application amount will further bring in more investors thus improving the liquidity in REITs”.

    – Vinod Rohira, CEO, Mindspace Business Parks REIT

    In late 2020, it was first reported that SEBI was considering opening up REITs and InvITs to small investors by lowering the minimum trading lot size of REIT units from ₹50,000 to the value of just a single unit, much like how stocks are traded.

    Presently, there are just three publicly listed office REITs in the country – Embassy REIT, Mindspace Business Parks REIT, and the most recently listed Brookfield India REIT (Yadav, MINT).

    “We commend this proactive initiative by the regulator to reduce the trading lots of both REITs and InVITs. Embassy REIT’s listing in 2020, coupled with our strong and resilient performance since then, has paved the way for Indian REITs to evolve a mainstream asset class. With approximately $2 billion of primary REIT equity having listed in India in the last two years, leading global and domestic asset managers and growing numbers of retail holders now form the foundation of REIT unit holder registers. The reduction in lot size will increase liquidity for the entire REIT market, enable REITs to be included into benchmark domestic indices and allow greater participation from newer pools of institutional and retail investors.”

    – Michael Holland, CEO, Embassy REIT

    Impact to CRE Investing in India

    With India being on every investor’s radar as a country with potential lucrative returns, this should be welcome news. It’s also clear both Vinod and Michael, CEOs of two-thirds of India’s publicly listed REITs, echo each other’s statements. Revisions and relaxation to SEBI norms will improve liquidity conditions for REITs. This should encourage foreign investment and furthermore, the kind of investment India wants to see an increase in (Yadav, MINT).

    India has steadily been growing in CRE investment, something they telegraphed they would try to do. In India, CRE has grown at a 16 percent compound annual growth rate (CAGR) over the last five years. India was one of the few countries who avoided significant CRE investment decline resulting from COVID-19 (Sinha, Financial Express). All-in-all, while India’s real estate investment market (commercial or residential) obviously can’t be compared to the United States, the numbers paint a clear picture. The most influential Indian industry executives double down on what the numbers show. The aforementioned actions recently taken by SEBI will only continue that trajectory. How quickly India’s CRE market specifically will grow is definitely debatable, but for now there’s no doubt, investment is increasing. Again, SEBI altering norms to improve liquidity conditions for Indian REITs will continue to attract increasing investment to India.

  • Investigating a Critic of Real Estate Investing

    While real estate continues to be the biggest asset class in the world, there are still asset managers who are skeptical about recommending it to their clients as an investment vehicle. As Andy Rachleff puts it:

    One of the most common pieces of financial advice our clients hear from their friends and family is to invest their excess cash in rental properties. Unfortunately, this is terrible advice for all but a lucky few.


    Andy Rachelff

    The piece goes on to give four distinct reasons for critics’ deviation from traditional logic. Let’s break it down one by one.

    Income Isn’t Guaranteed

    While this is true, this is true when it comes to any financial investment vehicle. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), as of Q1 2021 the average 25-year return for private commercial real estate properties held for investment purposes slightly outperformed the S&P 500 Index, with average annualized returns of 10.3% and 9.6%, respectively. Residential and diversified real estate investments also averaged returns of 10.3% (NCREIF). Keep in mind, this data takes into account both the 2008 financial crisis and the COVID-19 pandemic. Each calamity gravely deflated assets in the real estate market. So while it’s certainly true that income isn’t guaranteed, over a 25-year period both commercial and residential real estate holdings outperformed the S&P 500 Index. While income is almost never guaranteed, this should make you feel more at ease about investing your money in the real estate sector.

    It’s Hard To Generate A Compelling Return

    Another generic statement that can be said about almost any investment vehicle. If generating a compelling return was easy, everyone would follow the same system. When you invest in real estate, whether it be through direct property management or a REIT, you still maintain some level of ownership over a physical asset. Conversely, with stocks, as an example, you own a piece of a publicly traded company that has a board of directors, executives, and senior management controlling the day-to-day operations. In other words, your money is in the hand’s of others. With the majority of real estate investment vehicles, you are in control. Therefore, you are the one who has the ability to make decisions that generate a more compelling return, versus leaving those decisions in other people’s hands. It’s easier to generate a compelling return when you have control because at the end of the day, no one will care as much about your money as yourself. Additionally, the under 8% net over eight years earned by Weatherfront’s portfolio is not only a logical fallacy as it is only one data point, but their complaint is largely surrounding the tax structure of rental properties investors will have to pay. It is anecdotal data tailored to disprove a very generic argument to begin with.

    It’s Better To Diversify Your Portfolio

    In this section, the writer essentially makes a compelling argument to investing in a REIT versus direct real estate investing. While we’ve covered both strategies in depth, it’s true that in the long-term a REIT, REIG, or some form of pooled investment will mitigate your portfolio’s risk. This is especially true for individual properties that “fall out of favor”, sometimes due to external factors (i.e. COVID-19 pandemic). The writer correctly points out the substantial risk in a situation where you have enough capital to invest in only one property and advises you against it, but then makes a perfect argument for how to actually diversify your capital within the real estate market. After all, diversification is cited by a vast majority a major benefit to the real estate investment sector. Irrespective of how much money you have to invest upfront, you have control over how much risk you want to take on. Therefore you can choose to diversify your real estate portfolio, or you can put all your eggs in one basket. We are in agreement with Weatherfront that the latter generally isn’t advisable.

    Liquidity Matters

    Depending on what approach you take to real estate investing, the writer has a point. If you take a direct approach to real estate investing, you can easily get stuck with an undesirable property. Alternatively, investing in a real estate index fund, gives you the same liquidity as investing in any other index or stock. Nowadays, it’s very rare to see an investor take all their excess investment capital and tie it down in one property. If they do, they’re doing so at their own peril. With so much data available that shows national long-term economic growth is cyclical, one would have to have a very high appetite for risk to directly invest in a single property. Diversification has been proven to be an essential component to any successful investment portfolio.

    Concisely, do we agree with the critic’s assertion to avoid investing in real estate holdings? No, we don’t. While the writer points out some opportunities to improve your real estate investment strategy, they don’t provide a compelling argument to avoid investing in the entire segment. While some data is anecdotal and some is actual, they make a good case to be wary of rental properties. At the same time, they make a great case for diversification through REITs and other real estate index funds. The fact is there will always be critics and skeptics of any investment choices. There are analysts who are paid to do just that. However real estate has been the world’s largest asset class for awhile and it isn’t going anywhere. For investors, it would be wise to embrace that and research the abundant amount of strategies available within the real estate segment. Diversification will always be critical. Especially if you’re not currently invested in the real estate market, it would be prudent to look into various strategies because you’re all but sure to find some that suit either your short or long-term goals.

  • Investigating a Critic of Real Estate Investing

    While real estate continues to be the biggest asset class in the world, there are still asset managers who are skeptical about recommending it to their clients as an investment vehicle. As Andy Rachleff puts it:

    One of the most common pieces of financial advice our clients hear from their friends and family is to invest their excess cash in rental properties. Unfortunately, this is terrible advice for all but a lucky few.


    Andy Rachelff

    The piece goes on to give four distinct reasons for critics’ deviation from traditional logic. Let’s break it down one by one.

    Income Isn’t Guaranteed

    While this is true, this is true when it comes to any financial investment vehicle. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), as of Q1 2021 the average 25-year return for private commercial real estate properties held for investment purposes slightly outperformed the S&P 500 Index, with average annualized returns of 10.3% and 9.6%, respectively. Residential and diversified real estate investments also averaged returns of 10.3% (NCREIF). Keep in mind, this data takes into account both the 2008 financial crisis and the COVID-19 pandemic. Each calamity gravely deflated assets in the real estate market. So while it’s certainly true that income isn’t guaranteed, over a 25-year period both commercial and residential real estate holdings outperformed the S&P 500 Index. While income is almost never guaranteed, this should make you feel more at ease about investing your money in the real estate sector.

    It’s Hard To Generate A Compelling Return

    Another generic statement that can be said about almost any investment vehicle. If generating a compelling return was easy, everyone would follow the same system. When you invest in real estate, whether it be through direct property management or a REIT, you still maintain some level of ownership over a physical asset. Conversely, with stocks, as an example, you own a piece of a publicly traded company that has a board of directors, executives, and senior management controlling the day-to-day operations. In other words, your money is in the hand’s of others. With the majority of real estate investment vehicles, you are in control. Therefore, you are the one who has the ability to make decisions that generate a more compelling return, versus leaving those decisions in other people’s hands. It’s easier to generate a compelling return when you have control because at the end of the day, no one will care as much about your money as yourself. Additionally, the under 8% net over eight years earned by Weatherfront’s portfolio is not only a logical fallacy as it is only one data point, but their complaint is largely surrounding the tax structure of rental properties investors will have to pay. It is anecdotal data tailored to disprove a very generic argument to begin with.

    It’s Better To Diversify Your Portfolio

    In this section, the writer essentially makes a compelling argument to investing in a REIT versus direct real estate investing. While we’ve covered both strategies in depth, it’s true that in the long-term a REIT, REIG, or some form of pooled investment will mitigate your portfolio’s risk. This is especially true for individual properties that “fall out of favor”, sometimes due to external factors (i.e. COVID-19 pandemic). The writer correctly points out the substantial risk in a situation where you have enough capital to invest in only one property and advises you against it, but then makes a perfect argument for how to actually diversify your capital within the real estate market. After all, diversification is cited by a vast majority a major benefit to the real estate investment sector. Irrespective of how much money you have to invest upfront, you have control over how much risk you want to take on. Therefore you can choose to diversify your real estate portfolio, or you can put all your eggs in one basket. We are in agreement with Weatherfront that the latter generally isn’t advisable.

    Liquidity Matters

    Depending on what approach you take to real estate investing, the writer has a point. If you take a direct approach to real estate investing, you can easily get stuck with an undesirable property. Alternatively, investing in a real estate index fund, gives you the same liquidity as investing in any other index or stock. Nowadays, it’s very rare to see an investor take all their excess investment capital and tie it down in one property. If they do, they’re doing so at their own peril. With so much data available that shows national long-term economic growth is cyclical, one would have to have a very high appetite for risk to directly invest in a single property. Diversification has been proven to be an essential component to any successful investment portfolio.

    Concisely, do we agree with the critic’s assertion to avoid investing in real estate holdings? No, we don’t. While the writer points out some opportunities to improve your real estate investment strategy, they don’t provide a compelling argument to avoid investing in the entire segment. While some data is anecdotal and some is actual, they make a good case to be wary of rental properties. At the same time, they make a great case for diversification through REITs and other real estate index funds. The fact is there will always be critics and skeptics of any investment choices. There are analysts who are paid to do just that. However real estate has been the world’s largest asset class for awhile and it isn’t going anywhere. For investors, it would be wise to embrace that and research the abundant amount of strategies available within the real estate segment. Diversification will always be critical. Especially if you’re not currently invested in the real estate market, it would be prudent to look into various strategies because you’re all but sure to find some that suit either your short or long-term goals.

  • Investing in a REIT: The Pros and Cons

    One of the most notable investment opportunities available to investors looking to enter the real estate market is a REIT (Real Estate Investment Trust). A REIT is a publicly traded company that owns, operates, or finances income-producing properties and real estate investors are able to purchase shares in them (Ranchers, Investopedia). This contrasts to direct real estate investment, which is typically considered purchasing a property, then either managing it, renovating it, renting it out, flipping it, etc. The primary difference centers around whether you’d prefer a hands-on approach to real estate investing. REITs give you the opportunity to diversify your portfolio and more specifically, your investment portfolio within the real estate segment.

    A typical REIT has publicly traded shares that can be purchased on a national exchange, however they often fund underlying properties directly. Such companies, known as Equity REITs, are typically involved in the construction of office buildings, or the management of apartments, hotels, etc. Conversely, Mortgage REITs may purchase asset-backed securities or make direct real estate loans. REITs must register with the SEC, and they’re subject to various regulations, most notably the requirement to pay 90% of the company’s taxable income in the form of shareholder dividends each year. Contrary to popular belief, there are also REITs that are not traded on an exchange, but they likely come with hefty fees, and far more limited liquidity options. Concisely, perhaps the most important takeaway from a REIT is that it provides access to a diversified pool of real estate investments that are essentially impossible for the typical investor, even a large-scale investor, to create on their own.

    The Pros of a REIT

    The biggest pro commonly referred to is a REIT gives a typical retail investor – who may not have enough liquid capital – to take a diversified approach to the real estate market. REITs may also be beneficial to investors that don’t have the expertise yet to assess the risks of a real estate investment. These investors may very well prefer a pooled approach to real estate. In case those cases, a REIT would be a great alternative to direct real estate investing, which would require a lot more experience and intricate knowledge of the real estate market. Investors not only get access to an income-producing product, but additionally to one that’s physically managed by a professional real estate market expert.

    Equity REITs, which are traded on national exchanges, have low capital requirements because investors are only buying a share of the trust. Since it’s traded on a public equity market, an investor can buy and sell these assets with relatively few liquidity constraints.

    Additionally, as we all know, investors are always cognizant of their tax rate, especially from capital gains investments. REIT investors are taxed more favorably on income from the investment because income is not typically taxed at a corporate level, due to the income from these pooled real estate assets being “passed through” to the investor. Contrary to a large corporation where all income is taxed before distributing dividends, REIT investors receive profits as ordinary income.

    Lastly, real estate investors may not always have a bullish position on the overall market and even more so on a specific project or space. Taking a short position on a real estate project, without utilizing an Equity REIT, would require considerable savvy, as well as most likely the use of expensive derivative products. In contrast, REITs allow market speculators to go long or short, depending on their market view.

    The Cons of a REIT

    As this section will conclude, there are definitely more pros than cons to investing in a REIT. As is often the case, one of the primary cons is the opposite of one of the main pros. Since REITs are a massive pool of assets, this makes understanding the underlying risk quite difficult to an average investor in the real estate market. Though the properties are thought to be managed by seasoned professionals, they aren’t exempt from making errors on occasion. The average investor may overlook an essential aspect of the REIT because they’re working under the assumption it’s managed by real estate professionals, or they may struggle to gain a comprehensive understand of the portfolio beyond simple summary statistics.

    Additionally, while this ties in partially with the investor’s preference of direct vs. passive real estate investing strategies, REITs can also be more expensive than a direct lending approach. As an example, fees charged for a REIT managers’ salaries can eat into the potential income gained from the investment. Savvy and wealthy investors with enough capital to diversify could definitely put themselves in a position to achieve higher returns by managing assets themselves. The issue becomes what constitutes “enough”. Should a single investor choose the path of diversification within the direct real estate investment market, “enough” would likely mean tens, if not hundreds of millions. Even so, they would have to incur management costs and while they may be lower than a REIT managers’ salary, the risk incurred would be unlikely to offset the potential capital gains benefit. This is why REITs are far more common and much more likely to be a better tool for investors who are seeking to diversify their portfolio, as opposed to diversifying their real estate portfolio with expensive and frequently reoccurring direct property investments.