REIT's are an easy way to invest in commercial real estate. But is easy a criteria that you should use when evaluating investments? Does ease of investing have any influence on how high your return will be in a real estate investment trust?
Ease of use has an impact on certain things. Software, for example, is measured on how easy it is to use. Ease of use has an impact on how many people will be successful in utilizing the purpose of the software. “Out of the box experience" is an ease of use event that people judge software and other items.
Ease of use does not have the same impact on real estate investments. However, ease of buying and selling do contribute to your investment liquidity. A publicly traded REIT will give you the ability to invest in commercial real estate without the illiquidity that traditionally has accompanied real estate investing.
Liquidity is a benefit when evaluating investments. You want to be able to get in and get out when you feel the need for either event. That is understandable. But liquidity does not necessarily have a positive impact on returns.
Just because you can get in and out of an investment easily does not guarantee that you will lock in a profit from that investment. So ease of use does not impact investment returns like it does software purchases.
Many people mix different criteria for evaluating things in their lives. They buy a minivan with two sliding doors that have remote controls because the vehicle is easy to use. They buy a computer because it is easy to set up and use immediately when they take it out of the box. People buy information like books and music on the internet because it is easy to purchase and they can use it immediately.
So ease of use improves people's lives in many ways. However, having an easy way to invest in commercial real estate should not be a criteria for judging the rate of return that you are likely to receive from an investment in a REIT.
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Dan Snyder is the president of the Association of Private Lenders.