Investors who own their own homes may be taking a limited view of real estate investment, and in turn are missing out on the benefits of owning commercial real estate through REITs, according to Nicole Funari, Nareit vice president of research.
Speaking on the REIT Report, Funari noted that oftentimes homeowners think they are already invested in real estate simply by owning their own home. While that is true, they also need to examine the differences between homeownership and owning commercial real estate, she said.
“They think they are covered in their investment portfolio when we feel that, no, you really are missing out on the benefits of commercial real estate,” especially because a lot of homeowners don’t consider the breadth of commercial real estate asset classes, Funari said.
“There are a lot of homeowners who don’t necessarily know what a REIT is and how it allows you to invest in commercial real estate without owning a whole office building,” Funari said.
Currently about 44% of U.S. households are invested in REITs primarily through their retirement accounts, while REITs are also included in major benchmark indexes. “REITs are pretty popular, even if people are not aware of them,” Funari said.
Funari outlined some of the key benefits of REITs for a homeowner, including their competitive returns, geographic diversity, liquidity, and the low correlation between REIT and homeownership returns.
While homeownership does show a slight outperformance over the short term, over time periods beyond 10 years, REITs outperform by a “pretty healthy margin,” Funari said.