Hey, what's up?
John Sonmez here from simpleprogrammer.com.
I got a question.
This one is sort of a real estate kind of investing question.
If you want to check out the playlist on all the real estate kind of investing videos that
I do, you can check them out here, but—excuse me.
He says here—or actually, you know what, it's not much of a question.
It's just a simple question, he just says, "Hey John, I'm curious to know what your opinion
is on investing in REITs."
What is an REIT first of all?
An REIT is basically like a stock that is—it's a company that has been put together that
invest in real estate and you can buy it like you can buy like a gold commodity, like an
index trade fund, like a gold fund.
An REIT is essentially that.
It's a real estate investment trust.
The idea behind it is that you take this group of properties, let's say like there are REITs
that invest in malls.
Instead of you owning malls you invest in this stock and this stock reflects the value
of those investments.
Seems like a really good idea, seems like a plausible idea.
They usually pay dividends.
REITs you invest in, not necessarily because the price of the stock goes up, but because
the dividend that you get on it.
It seems like a decent way to invest in real estate without having to deal with tenants,
without the risks, without any of that stuff.
In fact, a lot of people sort of—REITs as I say, that's how they convince you.
They say, "REIT, you don't have to deal with all this stuff."
But is that really true?
No, it's not really true and I'll tell you why.
Think about it this way, there's no such thing as a free lunch.
Everyone tries to get a free lunch in life and you just can't get a free lunch.
I'm not saying that REITs are not a good investment because they have been historically been pretty
decent investments and you can get good returns on the dividends on REITs but you're not going
to get anywhere near the returns that you can get in investing in real estate yourself.
Believe me on that because I've invested in REITs before.
I have a bunch of properties I invested in real estate.
I've been doing this since I was 19 and you're not going to get anywhere close to the kind
of return that you can get when you're controlling the investment itself.
Now, as to why this is, there are 2 reasons I'll give you why.
One of them is just a—you don't even have to know the technical details to know that
this would constitute a free lunch and there's no such thing.
From a principle perspective the why should be pretty obvious is that why do you think
that you would get the same kind of return not having to deal with the headaches, not
having to deal with tenants, not having to deal with acquiring a property, not having
to deal with any of the risks as you would as if you did that?
Logically, it doesn't make sense.
That would violate the free lunch rule.
There's no free lunch.
That would violate the free lunch rule.
You can't have that kind of a gross arbitrary situation.
It just doesn't exist.
I'm not saying arbitrary situations don't exist, I'm just saying that they don't exist
in that gross and accessible level.
That's just ridiculousness.
That should just be common sense thing.
The other reason why, the technical reason why probably that REITs don't return as much
is because, one, the person that's putting the REITs that's who is making the money.
They're going to have a management company, a board, they're going to have all this overhead
and they're not going to give you 100% of the profits.
They're going to take a lion's share of the profits and they're going to give you what's
leftover.
That's the whole point.
That's why—what was their motivation for forming an REIT?
You've got to think about it that way.
I know that a lot of them do pass on a lot of the profits that they make from the properties,
but it's not the same and you don't have that same level of control that you do, plus, you're
also going to be averaging in the bad dogs with the good dogs in there and you're going
to have more of a smooth out.
When you own properties yourself you can get rid of your bad dogs, you can change the way
that you manage the property, you can do things to increase the rent, you've got a lot more
control so you can increase the profitability a lot more than you can with an REIT.
In general, I recommend it or I recommend against investing in REITs.
I think that if you're going to invest in real estate just invest in real estate, take
the time, learn how to do it right.
If you want some help on that I created a course on how to invest in real estate for
software developers specifically.
It's just a no bullshit course that just tells you the basics and tells you how I did it.
I'm not trying to sell you anything in addition to that.
The course is expensive, I'll tell you that, but that's all you need to know to get started
and it cuts through the bullshit.
That is a much better investment than REITs in my opinion.
Feel free to disagree.
If you do, leave a comment below.
I'm always curious to hear.
Maybe you've become a billionaire from investing in REITs if you did, then let me know.
I don't know anyone who has really made a fortune on REITs, but I do know a ton of people
who have made a fortune investing in real estate themselves.
There you go.
If you like this video, if you want to get more videos like this on real estate, finances,
fitness, everything under the sun that is not technical for software developers because
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I'll talk to you next time.
Take care.
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