Many investors prefer to utilize Real Estate Investment Trusts (REITs) to diversify their portfolios. In many cases this vessel is a great option, but in other actually purchasing a rental property makes even more sense. Three specific examples include:
- Opportunity. Deals still exist, even in a sellers’ market. Purchasing a rental property makes sense if you find the right property for the right price. This means more than just a discount in the property’s price; it often means an opportunity also exists to add value. A kitchen, bathroom or even landscaping refresh can take a mediocre rental property into a highly sought location.
- Stability. REITs took a big dip last year. In March of 2020, REITs reported an average 42% drop. Investors who are leery to take this risk may consider shifting funds into a commercial property. These properties have a history of climbing in value with less fluctuation compared to an REIT.
- Value. Because REITs can fluctuate, the expense may be too high when you are ready to make your investment. In this case, it may be a better value to put those funds towards rental properties.
Those who have decided to move forward with a rental property opportunity are wise to complete their due diligence and negotiate the terms to better ensure their interests are protected. This should include a thorough title search to find and address any potential issues as well as a discussion of the terms included within the purchase agreement. You do not need to use a boilerplate document or the original one proposed by the seller. You can edit these terms and propose a new agreement, or have one drafted specifically to your needs.