REITS vs Owning Rental Property: Which One is Right For You?

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For many people, investing in real estate is a smart financial decision. When you choose to monetize your real estate, you have the chance to make a sizeable income over a long period of time.  While many people agree that investing in income-producing real estate can be a very lucrative endeavor, they have a hard time deciding which type of investment would be right for them. 

Most real estate investors chose between either owning their rental property and REITS. This can sometimes be a hard decision to make as both of these options have several advantages and disadvantages. In order to help you decide which investment would be right for you, here is a look at the differences between owning rental property and REITS.

What is a REIT?

REITs stands for “real estate investment trust.” With REITs, you are able to invest in an income-producing property without having to actually own the property. This form of property investment is favorable for people who would like to earn money from a property without having all of the responsibility that comes with ownership. 

There are several benefits that come from REITS, which include:

  • Upfront Investment. Unlike owning a property, REITs allow you to invest a certain amount of money upfront and you don’t have to worry about investing in upkeep and other maintenance issues with the property. This is referred to as passive investing. Many investors prefer this as it allows them to just provide the capital and they don’t have to get their hands dirty.
  • Liquidy. With REITs, you can buy and sell your share of the property at any time. 
  • No Experience Required. REITs allow you to only provide the capital. This means that you are not managing the property, therefore, you do not need to have any experience with real estate investing in order to make your investment successful.
  • Low Investment Requirements. REITs can come with a very low upfront investment. Publicly-traded and public non-traded REITs usually come with the lowest cost of entry.

REITs come with several advantages and are usually chosen by people who are looking for an investment that comes with low costs and minimal work. However, there are a few drawbacks to investing in REITs. Some of the disadvantages of REITs include:

  • Limited Amount of Control. REITs offer investors a minimal amount of responsibility. However, less responsibility also means less control. When you invest in REITs, you don’t have any say in the operations or how the property will be used.
  • Volatility. If you are investing in publicly-traded REITs, you are dealing with an investment that is bought and sold on the stock market. This means that the value of your investment could be prone to rapid fluctuations.
  • A Decrease in Portfolio Diversity. Because the value of publicly-traded REITs fluctuates so much, it is hard to establish a diverse portfolio of public market investments. 
reits vs owning property

Owning Rental Property

Owning your own rental properties requires you to take a more active role in your investments. However, over time, it can give you a substantial financial reward. Because you own these properties, you could benefit from tax advantages, as well as having a more immediate return on investment.

Some of the benefits of purchasing your own rental properties include:

  • Increases Equity. One of the advantages to owning property is the appreciation value. Over time, many properties will appreciate, which gives the owner several benefits in the form of equity. According to Zillow, on average, a home can appreciate about three to five percent each year. Depending on the location and condition of the property, it could be worth a lot more money after you have owned it for only a few years.
  • Reliable Income. When you own a rental property, you will have your tenants sign a lease where they agree to pay you a certain amount of money every month. This means that you will have a steady and regular flow of income each month.
  • Tax Deductions. If you own the rental property, there are certain tax deductions that you may qualify for each year.  If you have spent money on repairs, materials, insurance, or advertising, you may be able to deduct those expenses from your taxes.
  • Retain Control. When you rent a property to someone, they are able to use it regularly, however, you are still the owner. This basically means that you are still in control of the property. You get to decide how much to charge your tenants each month, how the property will be used, and what renovations need to be done. At the end of the day, you have the final say-so when it comes to any decisions that need to made about the property.

In addition to the many benefits of owning a rental property, there are also a few disadvantages. Here is a list of a few of the drawbacks to owning rental property:

  • Property Management. Unlike investing in REITs, owning your own property does require some work. It is up to you to find tenants, make sure they pay you, ensure that that they abide by the rental agreement, and provide any maintenance that the property may require. Luckily, there are several property management companies out there to help lighten your workload.
  • Required Expertise. When investing in a rental property, you don’t need to be a pro-investor to get started, but you do need to have a little bit of knowledge about the property that you are buying. Before you buy the property, you will need to calculate maintenance cost, the expected occupancy rate,  and estimated man-hours that will be required to get the property ready to rent. Without knowing this information, you could end up paying more for the property than what you will get in return. It is always a good idea to do an extensive amount of research about the property before buying it.
  • Larger Initial Investment. Because you are purchasing the entire property, you will be required to either pay for the property upfront or put down a substantial down payment on the mortgage. 

Are REITs Right For You?

Both owning a rental property and investing in REITs have their advantages and disadvantages. If you do decide to purchase your own rental property, Nomadic Real Estate can help take some of the burdens off of your shoulders.  Our team of highly-trained professionals can provide you with property management solutions as well as leasing and sales service. We can help ensure that your investment gets off on the right foot and help you manage it so that it can continue to be profitable for years to come.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.