Are REITs Better Than Real Estate: All You Need To Know

If you’re into real estate, you should know about REITs. But what are they? And are they really a better investment than regular real estate? Let’s find out.

property investment

A REIT, or Real Estate Investment Trust, is a company that owns and operates income-producing real estate. They’re required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. And because they’re structured as trusts, they’re not subject to corporate income tax.

REITs can be a great way to invest in real estate without having to actually buy any property yourself. And because they trade on major exchanges like the NYSE, they’re easy to buy and sell.

But are REITs really a better investment than regular real estate?

Here are some things to consider:

1. Diversification

One big advantage of REITs is that they offer diversification. When you invest in a REIT, you’re investing in a basket of properties across different sectors and geographic areas. This diversification can help mitigate risk and make for a more stable investment.

2. Liquidity

Another advantage of REITs is that they’re highly liquid. You can easily buy and sell them on major exchanges. This is in contrast to regular real estate, which can be much more illiquid.

3. Income

One of the main reasons people invest in REITs is for the income. Because they’re required to pay out at least 90% of their taxable income as dividends, REITs can be a great way to generate some passive income.

4. Risk

Of course, no investment is without risk. And REITs are no different. One big risk is that they can be very volatile and sensitive to changes in the broader market. For example, when the stock market crashes, REITs often take a beating as well.

UK property investment

How Real Estate is Better Than REIT

Now that we’ve looked at some of the advantages of REITs, let’s take a look at why regular real estate might be a better investment.

1. Control

When you invest in regular real estate, you have much more control over your investment. You can decide how to use the property and what kind of tenant to rent to. With a REIT, you’re essentially just along for the ride.

2. Appreciation

Another big advantage of regular real estate is that it can appreciate in value over time. This appreciation can provide a nice nest egg for retirement or other future goals.

3. Tax benefits

Regular real estate also offers some significant tax benefits, which can help boost returns. For example, you can deduct mortgage interest and property taxes from your taxable income.

4. Leverage

One of the most powerful tools in real estate investing is leverage. This is when you use other people’s money to finance your investment. For example, if you put down 20% on a £100,000 property, you’re only responsible for the remaining £80,000. This leverage can help you boost returns and earn a higher return on investment.

5. Pride of ownership

Finally, there’s something to be said for owning your own property outright. It can be a great feeling to know that you’re not just throwing away money on rent every month. And if you ever need to sell, you’ll likely get a much better return on your investment than you would with a REIT.

The Bottom Line

There’s no right or wrong answer when it comes to investing in real estate or REITs. It really depends on your individual goals and objectives. That said, there are some clear advantages and disadvantages to each option. So be sure to do your homework before making any decisions.