Question

React to each of the following questions.

Becoming a publicly traded real estate company in the form of a REIT makes a real estate company 5-10% more valuable than if it remains private.

Answer 1

REIT is more value than private real estate company, this is true and there are several reasons for that,

1. REIT are better diversified , less risky than private company

REIT owns huge portfolio of properties that reduced the risk compared to private market investment, which are more concentrated than diverse. Although being concentrated may lead to higher return but it also increases the risk of the investment

2. REIT are more liquid than private investment:

REIT reduced the risk of illiquidity because they can trade easily and freely in the market and are more easily sold at minimal transactional cost. In comparison, buying and selling of properties is very time consuming and very costly. Usually they pay somewhere between 5-10% in different fees and transactional cost. In comparison the REIT has already paid the transactional cost and the owns a portfolio that saves the underlying cost of real estate.