Owning A Rental Property Versus An REIT

By Rudy Rudulph, September 23, 2016

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Real estate investment trust is gaining in popularity especially since the S&P 500 announced a new separate category for the real estate sector within the index. So is investing in a REIT better than owning rental property? It may depend on your personal aversion to risk.

Advantages of Real estate investment trust

  1. Low cost of entry can be anywhere from $500-$1000.
  2. Liquid asset.  You can sell shares when you want and not worry about having to sell a rental property and pay real estate agent fees and closing cost.
  3. No complaints from tenants, which also means no maintenance and repair costs or late rent.
  4. Flexibility.  You can flex in different types of commercial properties, malls, vacation homes at reasonable pricing.  This is much harder to do as an individual investor.

Advantages of investing in rental property

  1. You have the control not a fund manager.  You decide on pricing and who lives in your property.
  2. Less debt to the IRS, with a rental property you can save on taxes from depreciation or a mortgage tax deduction.
  3. Potentially better returns.  When you purchase a rental property you are likely to spend a lot more than buying into an REIT.  So if you put down $100,000 on a property you will likely earn more than putting $1000 into a REIT.

The bottom line is an REIT might be a good way to get your feet wet in real estate investing before you jump into bigger deals and invest in a real estate property.