Invest in Rental Property or REITS?

[Anonymous]

I have an opportunity to buy an 2 unit rental property (out-of-state). Based on it's net income (property manager, after property tax, insurance, etc) it would be a 12% return. Buying cash so no mortgage.

On the other hand I could just invest in a REIT Type fund which provides a smaller return around 5% but it's just simpler.

Any thoughts from experienced investors?

[Anonymous]

If the property manager truly handles everything and you're confident you're calculating the return correctly, then the rental property sounds like a good deal.

But, I know the investment property I own tends to be a headache. I need to deal with various management tasks, etc. It was a great moneymaker when I had the same tenant in it for four years in a row. But when he moved, you realize that a single month vacancy can pretty much wipe out your profit margin. If I were going to invest additional money in real estate, I would lean towards a REIT.

[Anonymous]

Anonymous wrote:If the property manager truly handles everything and you're confident you're calculating the return correctly, then the rental property sounds like a good deal.

But, I know the investment property I own tends to be a headache. I need to deal with various management tasks, etc. It was a great moneymaker when I had the same tenant in it for four years in a row. But when he moved, you realize that a single month vacancy can pretty much wipe out your profit margin. If I were going to invest additional money in real estate, I would lean towards a REIT.

Thanks for your feedback and very good point about tenant turnover's impact on ROI. I need to base my ROI on a conservative vacancy...If I allow for 3 months of vacancy ROI drops to 9% which is still pretty solid.

[Anonymous]

sounds like a solid return to me. if you pass it up, i'd be interested in doing something like this. please tell us more specifics. what size place? cost? estimated monthly rent?

being in a different part of the US would provide some diversification (assuming you also own in the DC area already).

i have a reit and investment property too. we'd need to know your risk tolerance and the rest of your investment portfolio in order to give you a better answer.