Doesn't this highly depend on the market you are in and how much competition exists for great deals? However, the degree to which these tax advantages can be realized depends on the specifics of the investment vehicle. I'm guessing you get much higher leverage for your money on real estate than REITs, but I could be wrong. In this post I take a look at the pros and cons of investing in REITs vs. rental properties as ways to generate income, along with why I tend to prefer one approach over the other. Press J to jump to the feed. Thanks. This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. However, it requires significantly more effort and is a lot less liquid than a REIT … Not something an individual can replicate. Rental properties. And that education is free... My cash on cash returns are astronomical. Rentals may be more work, but get some tax advantage in terms of depreciation, maintenance expenses, etc. 2: Income earned . 4 Professional management (in most cases) 5.Low transaction costs The advantages of physical property investment 1.gearing 2.own decision making But for me I think you pointed it out yourself, the biggest advantage of owning physical property is not following the price every day, so it lends itself to a long term investment. Direct Depreciation and others benefits...I can list which will not be available in REIT. Buying Rental Property Vs. Owning rentals isn't passive income. Unfortunately that is at the cost of a lot of complexity. My goal is 20 properties paid off and then hand the keys over to property management. REITs vs Real Estate Ownership: Should You Buy Your Own Real Estate Property or Invest in a REIT? the real advantages of REITs are of course that you can obtain high dividend yield properties without the headaches of management - in my own portfolio is SNH or OHI for senior living homes - I picked both of them up when they were in the low 13,20 range respectively and are reaping in 13% yields without having to pay for maintanence costs, paying a management company, owning insurance etc etc. The work required to manage multiple properties doesn't scale proportionally to the number of properties that you own, whereas the the revenue does. Owning REITs is stupidly simple. Thanks for the input. Which one will make more money? You have to plan/budget for repairs, be a property manager or hire one, take out a Mortgage, pay property taxes, take out insurance, etc. Same question running through my mind. I guess this works if you have $400k to begin with, though (and that would mean that unless you wanted 100% of your portfolio in a REIT, you would have a lot more other assets for diversification purposes). I see you have listed Vanguard ETFs, but what are the equivalent mutual funds? A rental property is an illiquid investment that requires an investor to tie up thousands or millions of dollars into a single property for a long period of time. A decent condo in my area will go upwards of $400k. REITs. Alternatively, if one bought the $450k property and rented it out, at least the mortgage might be completely or close to paid for by the tenant (or roommate). Investing In A REIT, Part II. VNQI if you want to go international. To give you a better idea of weighing different options, I’m going to choose a battle between: Rental Properties and Real Estate Investment Trusts (REITs). You can make a higher rate of return on cash with rentals. Airbnb vs. long term rental: What is a traditional rental? You also manage your own investment directly, so if you're savvy, you can make really nice returns (cash flow plus appreciation). VGSLX and VGRLX? I can tell you that rentals will make you rich if you know what you're doing. Either that, or I'm very jaded by the California market. Buying Rental Property vs. REIT Investing: Tax Benefits Owning a rental property, as well as REIT investing, has the benefit of tax deductions. Gains between rental property (assuming one can afford it in the first place) vs. REIT seems really far apart. I have been trying to diversify into rentals as well, but a high tax bracket in my state is a big barrier. At its core, FI/RE is about maximizing your savings rate (through less spending and/or higher income) to achieve FI and have the freedom to RE as fast as possible. I think these thoughts on REITs are interesting:, New comments cannot be posted and votes cannot be cast, More posts from the financialindependence community, Continue browsing in r/financialindependence. Which gets you a better return? New comments cannot be posted and votes cannot be cast, Press J to jump to the feed.