Direct real estate investments offer passive investors superior tax benefits, improved portfolio diversification and far less volatility then REITs.
Benefits of passive real estate investing vs REITs include:
- Superior tax benefits - ability to defer 100% of taxes until sale. Direct owners of real estate can also transfer their tax basis to another property via a 1031 exchange.
- REITs are extremely difficult to value
- Private real estate investments typically offer higher cash flow yields - most REITs pay 2-5% in yearly dividends, whereas a typical mobile home park investment returns 12-20% average cash on cash yields.
- REITs (over the short term) behave more like stocks than real estate and are highly volatile.
For a detailed discussion of the benefits of passive real estate investing, you can review our guest blog post on BiggerPockets: Passive Real Estate Investing vs REITs