When you are looking to invest in real estate, you might hear two different terms regarding investment, direct and indirect real estate investment.

A direct real estate investment is when you buy a property by yourself or with others, and you own the property. With direct real estate investment, you are an owner of the property, and your name would be on the title. Indirect investment is where you will give your money to usually a fund that is investing in real estate, and they will invest your money for you. Many of these types of indirect investments are real estate investment trusts or REITs.

Table of Contents

• What Is Direct Real Estate Investment?
• What Is Indirect Property Investment?
  • What Are REITS Or Real Estate Investment Trusts?
• Differences Between Direct And Indirect Real Estate Investments
  • You Can Listen To Our Podcast About Navigating The Realms Of Direct And Indirect Investments Below or By clicking here.
• Frequently Asked Questions
• Related Questions
  • Who Should Pay Property Tax, Tenant Or Landlord?
  • 3 Types Of Real Estate Ownership Explained

What Is Direct Real Estate Investment?

Direct Real Estate Investment is when you buy a specific property. You can buy it by yourself, or you could buy it with another group of people where you would all be co-owners. Direct real estate investment is an entity you own directly.

Direct investments can include co-owning an apartment, shopping center, or office building. You are either an owner of this property or a co-owner with other individuals.

One of the advantages of Direct Real Estate Investment is that you own the property and know exactly what property you own. It means that your name would be on the property’s title, and you would then be able to sell that to another or give it to your children when you pass away.

In Direct Real Estate Investment, if there are issues or problems with the property, you will probably need to deal with those or hire a property manager to manage the property.

What Is Indirect Property Investment?

Indirect Property Investment is different than direct property investment. It usually involves buying shares in a fund or publicly or privately held company.

In other words, you will buy and share in the fund, but you will not have much to say about how that fund is controlled. You will not have a say in how they spend the money or what properties they decide to invest in.

The indirect investment could work well if you do not want to be bothered with your direct real estate investment. You may find that you do not have the time, but you would like to be able to invest in a fund to have more real estate ownership.

If you trust the fund and you believe that it is a fund that will use your money wisely, then the indirect real estate investment may be the investment for you.

What Are REITS Or Real Estate Investment Trusts?

One of the more common indirect investments is known as a REIT stock. The REIT stands for Real Estate Investment Trust.

REIT is a company that owns, operates, and finances income-generating real estate. The REIT or Real Estate Investment Trust will pool the money of many investors to invest in real estate.

The advantage is that it allows individuals to invest in real estate and/or income from the real estate without having to buy, manage or finance property themselves.

What type of properties fall under a REIT portfolio could include apartment complexes, data centers, healthcare facilities, hotels, office buildings, retail centers, self-storage units, timberland, warehouses, and even infrastructure such as fiber cables, cell towers, and energy pipelines,

Usually, when you buy into a REIT, it will specialize in a specific type of real estate sector. But some REITs have different property types to diversify their portfolio.

Here are a few aspects of REITs or Real Estate Investment Trusts that you should be aware of:

• Many REITs are publicly traded on significant security exchanges, and investors can buy and sell them like stocks throughout the trading session.
  
• Many REITs are considered an essential part of many people’s investment portfolios because many funds can offer a strong, stable annual dividend and long-term capital appreciation.
  
• REITs are usually easy to buy and sell as most trade on public exchanges. So if you want to get out of the REIT investment, you can generally trade or sell them.
  
• Unlike owning the property yourself as a direct investment, REITs do not offer much capital appreciation.

Differences Between Direct And Indirect Real Estate Investments

The difference between direct and indirect real estate investments is if you want to own the property, you can consider a direct investment. Or, if you prefer to give your money to a publicly traded company such as a REIT and allow them to manage it, then indirect investment will fit you.

You may find yourself even involved in some of the day-to-day operations for direct investment. There could also be issues if you have co-owners with whom you may not agree or get along. And it may not be easy to liquidate or sell your interest in a property.

But on the other hand, if you directly invest in real estate and the property increases in value, you and your co-owners will benefit from that investment.

REIT or indirect real estate investments usually have lower growth than direct real estate investments. But on the other hand, you are allowing somebody else to manage your investment.

It is much easier to liquidate or sell your indirect investment, primarily if it is publicly traded on the stock exchange. Most indirect investments as REITs funds, also offer a stable cash flow or dividends.

What type of investment is right for you depends upon how much money you have or how much you want to risk in real estate investment. And it can also depend on how much time you have for a direct investment versus an indirect investment.

You Can Listen To Our Podcast About Navigating The Realms Of Direct And Indirect Investments Below or By clicking here.

Real Estate Crunch gives you real property and real estate information and advice. We offer a free monthly newsletter; you can sign up for our newsletter by clicking here.

We also have a weekly podcast called “Real Estate Crunch,” found on all major podcast platforms. Listen to our podcast by clicking here.

Follow us on our social media platforms – Facebook and Instagram.

Frequently Asked Questions

Related Questions

Who Should Pay Property Tax, Tenant Or Landlord?

A landlord has a legal burden to pay the property tax and not the tenant. Most landlords will include the property tax cost within their rental amount. There are also several other things that tenants should not have to pay for. The property taxes are assessed upon the property’s value, so if the property value goes up, your rental cost may also go up to reflect the increased property tax.

By clicking here, you can read more about Who Should Pay Property Tax, Tenant Or Landlord?

3 Types Of Real Estate Ownership Explained

They’re three types of ownership for a property. One is that one individual owner owns the property. The other is that a property is co-owned by several or two individuals. Usually, married couples are considered co-owners of the property. The third way is the property is in a trust, and the trust on the property is managed through the trustee; the trustee would still have significant control over the property.

By clicking here, you can read more about 3 Types Of Real Estate Ownership Explained