You can invest in real estate by owning buildings directly or by buying shares of real estate investment trusts. Each has distinct tradeoffs.
REITs
REITs own and operate income-producing properties and must distribute at least 90% of taxable income as dividends. You can buy them in a brokerage account or IRA with small amounts, diversify across property types and sell quickly. Prices are volatile like stocks.
Direct ownership
You control the asset, can use leverage, benefit from depreciation and may earn higher returns through effort and local knowledge. But you must manage tenants, repairs and vacancies, and concentrate risk in one property or market.
Choosing
If you want passive, liquid exposure, REIT index funds are simple. If you want control, tax advantages and are willing to work, direct ownership may suit you. Many investors do both.
Try the numbers
Use our Rental Property Calculator to see this in practice. With its default example (Purchase price: $300,000; Down payment: 25%; Mortgage rate: 7%), it shows monthly cash flow: -$138. Adjust the inputs to match your situation.
Key takeaways
- REITs are liquid and diversified; rentals offer control and leverage.
- REIT dividends are generally taxed as ordinary income.
- Many investors combine both.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.