Do Homeowners Need REIT Investments?
August 20, 2021 | Nicole Funari | Nareit
Investing in commercial real estate through REITs can help improve portfolio performance in a number of ways. REITs help diversify portfolio exposures, reducing overall risks, while generating a high level of income and a competitive total return.
Investors who are homeowners may ask what the additional benefits are to investing in REITs, as housing gives them some exposure to real estate markets. Homeowners can benefit because income-producing commercial real estate is a very different investment than owner-occupied residential real estate. Analysis shows REIT long-term returns outpaced home ownership returns, even accounting for the imputed value of rent. REITs and homeownership returns are not highly correlated, with a correlation of just 0.46 over four years.
Owning a home is primarily about having a place to live, although it does often produce capital gains over time. Homeownership does not, however, generate current income, but rather requires regular mortgage interest, real estate tax, insurance payments and maintenance costs. Moreover, as shown below, the long-term investment returns to homeownership generally lag REITs, even taking into consideration the value of the home as shelter.
