An Ignoble Experiment: WCI August Real Estate Newsletter — Direct Real Estate Investing vs. REITs

Welcome to the Monthly White Coat Investor Real Estate Newsletter!

Thank you for being a member of the WCI Real Estate Opportunities Group! We hope you find the enclosed information and introductions helpful. Remember that we have a financial relationship with each company listed in this email, you generally need to be an accredited investor to invest, and you are still responsible for any necessary due diligence. Consider these to be introductions, not recommendations. This newsletter should be the first step in your due diligence process, not the last one.

Today's Topic: Direct Real Estate Investing vs. REITs

Direct real estate investing allows you to buy investment properties to own and manage individually. In contrast, a real estate investment trust (REIT) allows you to buy into a company that manages properties on behalf of the shareholders. Both are ways of investing in real estate, but they are truly different approaches to this asset class and have very different levels of investor involvement. They sit on opposite ends of the real estate investing spectrum, but are worth discussing together.

You can buy a REIT like a share of stock or through real estate investing platforms, which is much quicker and easier than buying and managing real estate independently. Each of these approaches to real estate investing has unique pros and cons, and neither is perfect for everyone. Here's a closer look at direct real estate investing vs. REITs to help you understand which makes the most sense for your portfolio.

Direct Real Estate Investing

Direct real estate investing is a major endeavor where you buy investment properties on your own or with a small group of partners. In this case, you get to keep all (or your portion) of the profits, but you also take on all of the risk if something goes wrong. If you're a busy medical professional, you might not want the significant time commitment to manage rental properties. Unless you want to take on that responsibility, hiring an experienced property manager can be a good idea. But it's also costly. Typical property management fees are 10% of the monthly rent, plus additional fees for finding and screening new tenants. Depending on your budget, you potentially could buy single-family homes, multi-unit homes, or larger apartments. Commercial real estate is also on the menu if you're interested.

The pros of direct real estate investing

Get all profits from a well-managed property.
Complete control over which properties you buy, rent levels, and improvements.
Invest in properties locally or in other states.
Property managers can take on much of the work.

The cons of direct real estate investing

All risk of losses falls on the investor.
The owner must pay for maintenance, improvements, and repairs.
Tenants are not always reliable, and they may damage property.
Property managers can be expensive.

REITs

REITs are a way to invest in property management companies or a portfolio of properties with the risk shared with many additional investors. To qualify as a REIT, companies must distribute at least 90% of their taxable income to shareholders as dividends (among other requirements).

Some REITs are companies you can buy and sell using your stock brokerage, while others are run through other websites or private listings. Some REITs are companies you may recognize. For example, Public Storage is a REIT. Simon Property Group owns shopping centers and malls. VICI Properties owns gaming and hospitality real estate. Public REITs span many industries—including logistics, communications, digital infrastructure, data centers, industrial properties, golf courses, retirement homes, and more.

Other REITs are run through specialized apps and websites. Fundrise, RealtyMogul, DiversyFund, HappyNest, Streitwise, and Roofstock offer privately managed REITs. Some allow anyone to invest, while others require you to be an accredited investor.

The pros of REITs

Make a diverse investment with a single purchase.
Buy and sell on the stock market in some cases.
Someone else manages individual properties.
At least 90% of profits are paid out as dividends.

The cons of REITs

You have to pay the REIT to manage the properties.
Fees may apply.
Investors have much less control over their real estate portfolio.
Returns can be lower than direct investing.

How to Decide Between Direct Real Estate Investing and REITs

REITs make a lot of sense for doctors who want to delve into real estate investing without the time commitment and risk of managing individual properties. By investing in REITs, you're essentially buying shares in companies that manage a portfolio of properties, which distributes risks among many investors.

This option is appealing for its simplicity and lower time investment. You can easily buy and sell REITs through stock brokerages or real estate platforms, making it a convenient choice for busy professionals. You can also start small, sometimes with as little as $5 at some brokerages.

On the other hand, direct real estate investing is more hands-on, and can have a much greater return potential. It involves purchasing properties, which you then manage or choose to have managed by professionals. While this route offers full control over your investments—including decisions about property types, rent levels, and improvements—it also carries the full weight of risks and responsibilities. Like most investments, there is a direct correlation between risk and return.

For doctors already managing a demanding career, direct investing can be a substantial addition to your workload unless you opt for property management services, which come at an additional cost.

Some investors find a balance by diversifying into both direct real estate and REITs. This approach allows you to enjoy the hands-on control and potentially higher profits of direct investing while benefiting from a REIT's diversified, hands-off nature. It's a strategy that can blend active involvement and passive income, fitting for different risk appetites and time commitments. As with any investment, it's crucial to weigh the pros and cons of each option and consider how they align with your financial goals and lifestyle.

Ultimately, it's up to you to decide how to invest. Starting with REITs is a great way to dabble in real estate with less risk and commitment. But if you can afford it and have the stomach for the real estate markets, direct real estate investing can be a great way to diversify your income, build semi-passive income streams for retirement, and create generational wealth for your family. It is also possible to invest in private real estate funds, which for many investors provide some of the benefits of REITs and direct investing, but we will save that topic for another day.....

Recently Published Articles That Relate to Real Estate

Check out these recent articles and podcasts that relate to real estate from across the WCI Network:

Current Real Estate Opportunities

DLP Capital (Multiple Funds)

DLP has been around for a long time and treats investors better than any similar company we know. Their investments are straightforward, easy to understand, and profitable. They even pay preferred returns before they receive their management fee, which is unique in the industry. DLP has five funds: 2 equity funds, 2 debt funds, and a notes fund. DLP has agreed to lower that minimum to $100,000 if you go through the links in this email and/or tell them you're coming from The White Coat Investor. Jim is invested in the Debt and Equity funds with DLP.

To learn more, watch the DLP Capital Webinar.

Check Out DLP Today!

MLG Capital (Multiple Funds)

MLG Capital is a real estate investment firm, founded in 1987. Focused on serving accredited investors, investment advisors, family offices, and more. Each of the MLG Private Funds target to acquire a geographically diverse portfolio of 25-30+ commercial real estate assets across several key U.S. markets.

Since its inception, MLG Capital and its associated entities have had active, exited or pending investments of nearly 46 million square feet of total space across the United States, inclusive of more than 39,000 apartment units, with exited and estimated current value exceeding $±.6.7 billion.

MLG Private Fund VI is now open for investment.

To learn more, watch the MLG Capital Webinar.

Check Out MLG Capital Today!

Southern Impression Homes (Turnkey Homes)

Southern Impression Homes is the parent company of one the most successful Build To Rent Ventures in the United States. They specialize in helping individual investors build successful rental portfolios in high growth, landlord friendly markets in Florida. Focused on new construction homes in desirable neighborhoods designed to maximize landlord profit with better inventory, less tenant turnover, lower maintenance and repairs and a better overall growth strategy for both rents and values. Their system provides full-service in acquisition, building, construction, property management and ongoing client support and education. Most clients come to SI Homes looking for an alternative to the stock market because SI's strategy creates ongoing cash flow, real estate appreciation and an excellent hedge against inflation. For the right investor, their system delivers amazing results to help overcome those issues quickly and completely.

To learn more, watch the Southern Impression Homes Webinar.

Check Out Southern Impression Homes Today!

Origin Investments (Funds and Syndications)

Origin Investments is a private real estate fund manager that helps individual investors protect and grow their wealth by providing tax-efficient real estate investments in the multifamily sector. We build, buy and finance multifamily real estate projects in fast-growing markets throughout the U.S. We also offer credit Funds through our affiliate firm, Origin Credit Advisers, an investment advisor registered with the SEC.

Since our 2007 founding, we have executed over $3.6 billion in real estate transactions and our principals have invested over $90 million alongside our investors. We rely on our market experience and employ Multilytics^SM, our proprietary suite of machine-learning models that forecast rent growth, to help us choose the best properties and markets for investment.

We are accepting new investors for our open QOZ Fund III and IncomePlus Fund, which seek to provide tax efficiency, enhance portfolio yield, maximize growth and minimize portfolio volatility. Additionally, we have recently released Origin Exchange, our newest offering aimed to simplify the 1031 exchange process. Our affiliate firm, Origin Credit Advisers, also offers the Strategic Credit Fund, a private credit Fund open to qualified purchasers (an individual or a family-owned business that owns $5 million or more in investments, excluding their primary residence or any property used for business). The Strategic Credit Fund's objective is to provide a consistent stream of risk-adjusted income with capital protection.

To learn more, watch the Origin Investments Webinar.

Check Out Origin Investments Today!

Wellings Capital (Fund)

Wellings Capital seeks to help accredited investors passively protect and grow their wealth through investing in self-storage, mobile home parks, RV parks, and more asset types throughout the country. Over 800 accredited investors have invested in Wellings Capital funds, which aim to provide value to investors in four primary ways:

Instant diversification across private real estate asset types, operators/sponsors, geographies, properties, and strategies
Extensive, professional due diligence on operators and properties
Access to deals and operators
Better terms

Their sixth fund, the Wellings Real Estate Income Fund, is accepting new investors with a $50,000 minimum investment. The Fund only accepts new capital when properties are identified, so all capital is called up front.

To learn more, watch the Wellings Capital Webinar.

Check Out Wellings Capital Today!

37th Parallel Fund II (Fund and Syndications)

37th Parallel has been doing multi-family syndications for years. Since their inception in 2008, they've completed over $1 billion in multifamily transactions while maintaining a 100% profitable investor track record. Their Income and Total Return Fund II is now open for investment. This $40M-$80M fund has a $100,000 minimum. Fund II is focused on acquiring and improving 200-plus unit Class A & B apartment complexes in 13 markets across Texas, North Carolina, South Carolina, Florida, and Georgia. Capital will be called as needed to acquire properties with a goal to have all investors' capital called within 12 months. Their goal is to begin liquidating or recapitalizing fund assets in seven to eight years from inception. Fund II has two share classes - Class A (Current Income) and Class B (Total Return). Class A shares have a 9% annual preferred return and first access to cash flows from operations but capped upside. Class B Shares have a 7% annual preferred return and second access to cash flows from operations along with an initial 80/20 split. Jim is personally invested in Fund I, and we have negotiated a $500 fee discount for you if you go through our links. If you prefer individually choosing which properties you invest in, 37th Parallel still does individual syndications too at a $50,000 to $100,000 minimum investment.

Check Out 37th Parallel Fund II Today!

Mortar Group (Syndications)

Mortar's approach to investments is simple. We are a vertically integrated firm with an experienced team that delivers consistent returns. Specializing in multi-family real estate, Mortar has been the driving force behind over 30 distinctive and successful developments in prime and niche New York neighborhoods since 2001. We leverage over two decades of experience in architecture, development, and asset management to build value and minimize risk for both investors and the residents who live in them. Our winning combination of high-returns and risk-adjusted strategies has led to an excellent track record of investment success.

To learn more, watch the Mortar Group Webinar.

Check Out Mortar Group Today!

EquityMultiple (Real Estate Platform)

Offers equity and debt investments to accredited investors. Equity Multiple is very transparent and invests alongside its investors in every deal, which is unique for a real estate platform. Since it has skin in the game, I expect EquityMultiple to be a little more conservative with its due diligence. Its volume is not as high as some companies, but perhaps that is a reflection of the higher quality of the deals that do show up. Jim owns a syndication purchased through Equity Multiple. Minimum investments are typically $5K-$20K.

Check Out EquityMultiple Today! (Management fee waived on your first investment when using this link)

Fundrise (Private REIT Provider)

Fundrise offers REITs and funds to non-accredited investors. It now has 7 REITs/Funds with various focuses, including income, growth, and various geographic areas. Minimums are the lowest we've seen, just $500. Jim has invested with Fundrise in the past, although that was before they started this REIT.

Check Out Fundrise Today!

CrowdStreet (Real Estate Platform and REIT)

CrowdStreet is the premium provider of online commercial real estate investment marketplace, technology and professional services. Investors can directly access institutional-quality commercial real estate offerings with CrowdStreet's online investing platform. CrowdStreet's REIT provides investors with easy access to a diversified portfolio of growth-oriented private commercial real estate projects from multiple sponsors through a single fund managed by CrowdStreet Advisors. This is a portfolio of 20-25 private commercial real estate projects selected by CrowdStreet. You can invest with lower minimums ($25K) and expenses than traditional private funds. The REIT election allows for simple 1099 tax reporting instead of multiple K1's.

Check Out CrowdStreet Today!

We hope you find these monthly newsletters helpful. We appreciate your feedback, both positive and negative, about the real estate opportunities you learn about here and elsewhere.

Jim and Brett

Jim Dahle, MD, FACEP
Founder, The White Coat Investor

Brett Stevens, MBA
COO, The White Coat Investor