Question

In: Finance

Which form of investment is most appropriate for a first-time real estate investor that is concerned...

Which form of investment is most appropriate for a first-time real estate investor that is concerned about liquidity and diversification? (a) Direct ownership of an out-of-town office building (b) Shares of a real estate investment trust (c) Buy-to-let property in a residential area for young professionals (d) Buy-to-let property for students

Solutions

Expert Solution

Of the four options, the most approprite investment for the investor who is concerned about their liquidity or diversification would be by buying the shares of a real estate inverstment trust (REIT). THis is because of the reasons as mentioned below.

A REIT is a trust which takes the money from the investors and use this to buy, construct, operate and sell various real estate opportunities. As a first time investor who does not have enough experience in the real estate business, this provides an ideal opportunity to reap the opportunities provided by the real estate industry. The REIT pays 90% of its profits as dividends and hence it is ideal for investors who want regular income. The REITs invest in different assets such as hospitals, malls, office buildings etc. which give them a diversified portfolio. Maintaining a real estate is also a time consuming and intensive task. Finding a suitable tenent, repairs and maintenance are also pretty involving tasks. REITs eliminates this process and hence would be an ideal choice for a risk averse investor.


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