> Why not just buy fractional shares of a property?
Transaction costs for diversification. The same reason it makes sense to buy ETFs versus directly balance your own portfolio for anything below your first million.
But owning a REIT is nothing like owning property. Sure, REITs and investment properties both derive cash flows from rent, but the similarities stop there.
In general, asking “why not X instead of Y” without giving reasons why X is preferable over Y is just a waste of everyone’s time.
Really? Most people own fractional shares of real estate, e.g. when the property is part of a marital estate.
Investing in a REIT is just investing in a company that happens to derive cash flows from real estate. You’re not buying fractional ownership of real estate when investing in a REIT. You’re investing in a management team and a capital allocation strategy. It’s much more similar to a mutual fund or PE fund. The only difference between a normal business and a REIT is that you have to pay income tax on your dividends. Owning a fractional share of a property is taking an ownership stake in a real asset. The two aren’t related at all.
> When disagreeing, please reply to the argument instead of calling names. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3."
Typically, fractional ownership of real estate assets is typically done via a tenancy in common title, not via a share mechanism, so your “share” (literally “portion”, which can be partial or whole) is a fraction of the whole.
If you and I bought a house together, no capital gains would be "paid". We would own an asset, which could go up in value and we could sell. Exactly the same with REITs.
This is, of course, incorrect. If you and I bought a house together, took ownership, enjoyed appreciation, and consummated a sale, and realized income, we would owe capital gains tax on the income.
There are some ways we could avoid some or all of it, but I was not considering a situation where you and I shared a primary residence, because we’d spend too much time arguing about taxation basics.
On the other hand, a REIT with more than the required number of members that distributes the required share of profits will pay no income taxes. Investors in the REIT, on the other hand, pay taxes on the dividends.
One little known fact about REITs is that the capital gains are taxed as income not as capital gains. On the other hand, you can use depreciation and a 1031 exchange to avoid paying any taxes on real estate you own / sell.
Transaction costs for diversification. The same reason it makes sense to buy ETFs versus directly balance your own portfolio for anything below your first million.