Are There Ethical Dilemmas in Real Estate Investing?

It would be next to impossible to ignore the news reports of the current mortgage crisis. After all, the number of homes that are being foreclosed upon is now in the range of millions and that surely has gotten the publics attention. It has also widely opened the doors for real estate purchase and investment opportunities as a great deal of property can now be purchased at relatively lower market values. There are some individuals, however, who may feel certain qualms about purchasing homes during foreclosures as this may seem like taking advantage of a downtrodden person. Such an attitude it not necessarily correct.

A foreclosure simply means that a mortgage has been defaulted upon and the lender is attempting to recoup their money through seizure of the property. While there are definitely some heartbreaking tales associated with foreclosures the fact remains that a foreclosure – much like the initial home purchase – is a business transaction. Banks simply can not lend out money that is not going to be paid back. As such, the inclusion of a buyer of the foreclosed upon property is simply another link in the chain of these business transaction. If the person buying has not been involved in any unethical dealings associated with the foreclosure of the property then the buyer is not doing anything wrong. As a matter of fact, the buyer may even prove helpful as the influx of sales cash can be used to pay off a large part of the remaining mortgage. So, do not let public sentiment designed to sway emotions towards a federal bailout put you on a guilt trip.

Public and Private Equity REIT Investing

As previously mentioned REITS are a sort of managed mutual fund that center on managing, selling, renting properties or lending money to facilitate such ventures. What needs to be understood is that there are two types of REITS that one can invest in: public or private equity REIT funds. While it would seem that on the surface there is little difference between the two the differences that do exist are so radical that understanding the differences is critical before making an investment. The REITS are known as Public and Private REITs.

Public REITS – Public REITS refer to those investment trusts that are offered publicly on the stock exchange. These REITS can be purchased and sold at the will of the investor. They are generally not considered high risk investments although high risk versions surely exist. Also, most of the returns on such REITS are modest as will any low risk investment.

Private REITS – Private REITS are not offered as public stock and are essentially the equivalent of investing in a business. These REITS are generally aggressive with potential high risks, but the payoffs on a private REIT have the potential to be significant. Please note that when one purchases a private investment the stock can not be sold! Instead, the duration of the term of the REIT is specified (say 7 years) and then dividends are paid out (hopefully) over the course of those 7 years with the intention of recouping the initial investment and then exceeding it as a competitive interest rate. If the REIT turns out to be a lemon, however, there is no way out of it. So, please understand these complexities before getting involved.

Investing in a Real Estate Investment Trust

There is a common misconception when it comes to taking part in real estate investing and that misconception is that an individual must be a “big money player” in order to wheel and deal in property. This assessment is a rather inaccurate one as there are a great many opportunities available to those who only have a modest sum to invest. (And, no, this does not refer to those wild over the top opportunities that are available on late night infomercials!) If there was a solid way to invest in real estate with a limited amount of capital it would involve in investing in a REIT – a Real Estate Investment Trust.

For those not familiar with what a REIT entails, probably the best description of it would be sort of mutual fund that invests in properties. That is, the REIT will involve a multitude of properties and interest will be paid on the success of these ventures. The way in which money is earned on a REIT involves the purchase and sale and/or management of property, and rental income (equity REIT); the lending of money for real estate purposes (mortgage REIT); or a combination (hybrid REIT). So, instead of venturing out into these investment options on your own you can invest in a collected managed portfolio of these ventures in the form of a REIT. Again, this is no different than a mutual find and comes with relatively low risk and low initial capital investment. Of course, you could also invest big as well as seek aggressive and volatile REITs as the choice is up to the investor.