REITs (Real Estate Investment Trusts) offer advantages and disadvantages over owning rental properties. To know whether investing in a REIT is as good as owning an investment property first decide whether being a landlord appeals to you. Rental properties require upkeep, management, and dealing with tenants or paying a property management company to do so.
REITs function like stocks because when you invest in them you do not own the actual underlying rental properties. Instead, you are investing in the company that owns and manages them. You have no say in how the REIT is managed or what it invests in. You are putting your money into it as you would into a stock.
While REITs can appreciate, rental properties in high-demand markets do the same. In such markets you are likely to benefit more from investment properties. However, if you want to invest in other markets and especially if you would like to have international real estate exposure, REITs can serve you well. The corporation that offers the REIT completes all the homework This can be a distinct advantage.–Be aware that you still need to do your due diligence on the REIT itself though.
In addition, how much money you can invest in real estate investments or in REITs can help you decide which way to go. For example, if you have a small sum only, buying rental property can be tough. Even if you can get a loan for the investment property, you will have additional expenses which require cash reserves. Such expenses include maintenance, property management, holding costs, and taxes. You won’t have to worry about any of this with a REIT.
So, is a REIT as good as owning rental property? What do you think?