I'm considering putting money into an REIT (through something like Fundrise or RealtyMogul), but as I'm doing my research, one thing I can't discern is why I should invest in the REIT instead of a stock/etf that the REIT is in.

For example, If I bought shares of a Vanguard REIT ETF or O (a well known REIT), what makes that different from investing directly in the underlying REIT?

Edit -- I understand that indexing can reduce my risk from picking stocks in the sector, but that's NOT what I'm getting at. I want to understand the difference between investing via stock and opening an account with an REIT and investing directly with them.


A REIT that trades on the stock market allows an investor to sell out of the position.

A REIT mutual fund holds REIT companies that trade on the stock market and then the mutual fund can sell holdings on the stock market to make redemptions.

A REIT that sells newly issued stock directly to investors but that does not trade on the stock market will buy-back stock only according to whatever they can do and are willing to do.

Also, selling newly issued stock directly to investors represents new funding while existing stock traded on the stock market is not new funding.

So I would suggest a company like I would set up. The company sells newly issued stock directly to investors but also provides a bulletin board where current investors can sell existing stock to new investors. Then a new investor in the company can choose to buy newly issued stock or choose to buy existing stock. In fact a small non-reporting company with unregistered stock would have regulatory limits to the amount of newly issued stock that they could sell.

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With a REIT ETF you buy a whole bunch of different REITs, an individual you assume more risk. Be careful of REITs that are not very liquid, but in cases you will be okay.

Why would you use Fundrise or RealtyMogul when you can use Vanguard directly and pay zero commissions on their ETF?

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  • 1
    Not really what I'm getting at -- the first paragraph, while applicable, is more about indexing vs active picking, than what I'm actually asking. The second paragraph, while appreciably snarky, is essentially just a reframing of my question to a specific examply. Makes me think I should edit my question for more clarity. – malachi1990 May 16 '19 at 18:02
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    @malachi1990 If I bought shares of a Vanguard REIT ETF or O (a well known REIT), what makes that different from investing directly in the underlying REIT? You asked specifically about a REIT ETF, which is specifically what Pete's answer addresses. And the answer to your whole question rests on risk specificity. Do you want risk in a specific property, do you want risk in a company that invests in properties, or do you want risk in a fund that invests in companies that invest in properties? – quid May 16 '19 at 18:17
  • Counterpoint is that the second example, O, is decidedly not an index fund, should have signaled that the indexing vs active picking was not the primary concern. Which also lead me to add the edit. – malachi1990 May 16 '19 at 18:31
  • As for your questions @quid -- those are the kind of issues that I'm looking for. – malachi1990 May 16 '19 at 18:33
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    @malachi1990, but then what did you mean by asking about the difference between investing in O vs investing in "the underlying REIT"? O is an REIT. What REITs do you mean when you talk about its underlying REIT? – The Photon May 16 '19 at 18:34

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