Compare
| Factor | Public REITs | Direct Ownership |
|---|---|---|
| Liquidity | Buy/sell in seconds | Months to sell a property |
| Minimum investment | One share (~$20–$200) | $50K–$500K+ down payment |
| Diversification | Instant (hundreds of properties) | Concentrated (1–2 properties) |
| Management | Professional management included | You are the landlord (or hire one) |
| Leverage control | Set by REIT management | You choose your LTV |
| Tax benefits | Limited (pass-through dividends) | Significant (depreciation, 1031 exchanges) |
| Correlation to stocks | Higher (trades on exchange) | Lower (private market pricing) |
Key point
REITs and direct real estate are complements, not substitutes. REITs provide liquid, diversified exposure. Direct ownership provides tax advantages, leverage control, and forced equity building through mortgage paydown.
Try it
Compare the total return of a REIT index (like VNQ) to the S&P 500 over the last 10 years. REITs provide diversification because they don’t move in lockstep with stocks.
Check-in
You have $100K to invest in real estate. Which approach gives better diversification?
Key insight
Check-in
Direct rental ownership vs REIT — both yield ~6%. Which has better long-term wealth-building economics?
Check your understanding
Sit with the ideas.
An investor is choosing between buying $200,000 in Realty Income (O) stock yielding 5.5% or making a $200,000 down payment on an $800,000 rental property generating $48,000 annual NOI with a $600,000 mortgage at 7%. Which generates more annual cash flow, and what are the key tradeoffs?
Why: