Lesson 2 of 8 · All lessons in this module
  1. What real estate is and why it is different
  2. Direct ownership, indirect vehicles and REITsVideo lesson
  3. Real estate returns, the risk-return spectrum and leverage
  4. Real estate income, inflation and diversification
  5. Infrastructure: assets, cash flows and categories
  6. Greenfield, brownfield and secondary stage; forms of investmentVideo lesson
  7. Infrastructure risk, return and diversification
  8. Integrated case: LTV covenant, leverage and infrastructure profiles

Lesson 2 of 8 · 14 min

Direct ownership, indirect vehicles and REITs

Owning property directly gives control and tax benefits at the cost of complexity, capital, concentration and illiquidity, while indirect vehicles, above all REITs, pool investors to give easier, more liquid and tax-efficient access.

In short

  • Direct ownership: buy the property (and arrange the debt) yourself. Owning it free and clear means no financing liens on the title.
  • Direct advantages: control, tax benefits (non-cash depreciation and deductible interest), diversification. Disadvantages: complexity, specialist knowledge, large capital needs, concentration and illiquidity.
  • Indirect vehicles pool investors: limited partnerships, joint ventures, funds, ETFs and REITs.
  • REIT types: equity (own properties), mortgage (own loans or MBS), hybrid (both). Main appeal: no double taxation, by paying out about 90%–100% of taxable rental income.
  • Listed REITs add transparency, liquidity and professional management, but are more correlated with equities than private property.
  • Open-end, infinite-life funds suit core property; closed-end, finite-life funds suit core-plus, value-add and opportunistic strategies.

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