What’s the Difference between REITs and REIGs?

REITs and REIGs are the most convenient real estate investment options. They have certain subtle similarities, which can be confusing for novice investors. However, they also differ in certain fundamental aspects that can have varying impacts on your investments and ROIs. For example, one option requires a larger capital than the other.

To this end, understanding how each option works is essential for making informed real estate decisions. Here is a brief overview of the differences between REITs and REIGs.

REIT Definition & Overview

REIT is an acronym for a Real Estate Investment Trust, which is an association, trust, or corporation that invests in real estate. REITs come in the following three types based on the nature of their real estate investments:

• Equity REITs: They invest in physical real estate assets, including residential and commercial properties. More importantly, the investments provide regular income from rents, leases, and property sales.
• Mortgage REITs: They invest in mortgage-backed securities or directly lend mortgages to real estate developers, homeowners, and buyers.
• Hybrid REITs: They invest in real estate property and mortgage-backed securities.

The most notable aspect of a REIT is that it is publicly traded on stock exchange platforms, including the London Stock Exchange. To this end, individuals can invest by buying a REIT’s stocks, entitling them to a share of the profits.

REIT Pros

REITs offer several notable benefits, including the following:

• Accessibility: You can easily invest in a REIT by buying its stocks. Moreover, you don’t need a large capital as individual shares are relatively affordable.
• Portfolio Diversification REITs invest in various real estate properties and assets, diversifying your investment portfolio.
• Competitive Returns: REITs are legally required to pay out at least 90% of their taxable income to shareholders through dividends, giving you a good ROI.
• Passive Income: REITs handle all investment activities, so your dividend payments are essentially passive income.
• Quick Liquidity: You can sell your REIT stocks within minutes on stock exchange platforms.

REIT Cons

However, REITs also have a few shortcomings, including the following:

• Fees & Dividend Taxes: Your dividend payments are subject to taxation. Additionally, unlisted and private REITs can change relatively high upfront costs and ongoing fees.
• Interest Rates & Market Volatility: Changes in mortgage rates and the general real estate market can impact a REIT’s income.
• Limited Control: Investors have limited input about a REIT’s activities and investments, which can be frustrating for large investors.

REIG Definition & Overview

REIG is an acronym for a Real Estate Investment Group. Like REITs, REIGs also invest in real estate assets. They mostly develop their own property or buy stakes in existing property and ongoing real estate projects. Additionally, they also sell or lease property, albeit they also retain all managerial and maintenance responsibilities for a fee. Moreover, they can invest in mortgage-backed securities or directly lend to developers, buyers, and homeowners.

Notably, REIGs usually operate as partnerships with private shareholders. To this end, investors can participate in a REIG’s investment activities and decisions. Moreover, they require large capital amounts, limiting access to high-net-worth investors.

REIG Pros

REIGs offer several crucial benefits, including the following:

• Portfolio Diversification: REIGs invest in different real estate properties and assets, diversifying your investment portfolio.
• Unrestricted Investment Opportunities: REIGs can invest in other industries and assets besides real estate, expanding your investment options and further diversifying your portfolio.
• Good ROIs: Profits from REIG investments are competitive, generating good returns on your investments.

REIG Cons

• High Capital Requirements: REIGs require large capital amounts because they directly invest in physical property, limiting access to high-net-worth investors.
• High Fees: Membership and property management and maintenance fees can be high, eroding your profits.
• Limited Liquidity: REIG agreements can limit your access to your funds, limiting liquidity.

Notable Difference Between REITs & REIGs

Overall, REITs and REIGs have two fundamental differences:

• Capital Requirements: REIGs require large capital amounts to purchase or develop real estate property, while REITs require relatively small capital amounts because the individual shares are affordable.
• Structure & Operations: REITs operate as publicly traded companies without input from investors, while REIGs operate as partnerships with active participation by shareholders.

Conclusion

While REITs and REIGs share some similarities, they are fundamentally different. Overall, it is important to conduct further research into each option to get the full picture of how the differences can impact your investment.