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The Reits are not smarter than you

The world of real estate investment trusts (Reits) can sometimes appear complex, but the fact is, if you have ever bought a home, or rented one, you have already seen how many Reits operate. This makes real estate unlike almost any other sector in business. Few of us have experience of running a mining, fashion or airline company, but plenty of us have bought real estate – or at least attempted to. While the amount of money involved in buying a flat in Digbeth pales in comparison to the amount of money involved in buying an office building in the City of London, the basics of the transaction are exactly the same. The only difference is the scale and the corresponding level of risk and reward.

Say you want to buy a place in a part of the country in which you already live. An estate agent will be able to show you properties and give you some price valuations, but you know more about that local area than any estate agent will ever be able to tell you. You know what the people are like, where the best places to eat are, what there is to do and how easy it is to drive, walk or use public transport in that area. All of these are things estate agents often pretend to know, but which you will know for certain because of your experience living there.

The same principles apply to the world of commercial real estate. Reits do not know everything there is to know about the entire property sector. They only know their market – whether that’s a particular asset class, geography, lease length or type of tenant. Like you, they use agencies to show them buildings, not to tell them what their market is like. Putting down an offer on a home might feel different from what happens at a Reit, but the process is the same. You put in an offer, sometimes you’re given a counter offer, sometimes you counter the counter and sometimes you are outbid. If your bid is chosen, the home goes under offer, but sometimes the deal can fall through and it’s back on the market again. If not, the deal goes to legal proceedings until, finally, the deal completes and you’re handed the keys.

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