Real Estate Investing: REITs Vs. Physical Properties; 3 ETFs To Consider

Real estate has always been a favored investment avenue, providing stability and long-term growth. However, when it comes to investing in real estate, investors face a crucial decision: should they invest in Real Estate Investment Trusts (REITs) or directly purchase physical properties? Both options have their pros and cons, and choosing the right approach depends on one’s financial goals, risk tolerance, and investment strategy.

Why Consider REITs?

REITs offer investors exposure to real estate without the complexities of owning and managing physical properties. Here are three key advantages:

Lower Entry Barrier – Unlike purchasing a property that requires a significant upfront investment, REITs allow investors to enter the real estate market with relatively small amounts of capital. With share prices often below $100, investors can diversify across multiple real estate sectors without large capital commitments.

High Liquidity – Selling a physical property can take months, whereas REITs trade on stock exchanges, allowing investors to buy and sell shares almost instantly. This liquidity makes REITs more flexible compared to direct real estate investments.

Tax Efficiency – Buying and managing rental properties can be tax-heavy, with property taxes, capital gains taxes, and maintenance costs. REITs, on the other hand, are structured as securities, meaning investors are taxed on dividends rather than facing the full tax burden associated with property ownership.

Why Buy Physical Properties?

For those looking for tangible assets and direct control, buying physical properties remains a strong option. Here’s why some investors prefer it:

1. Stable Income and Appreciation – Rental properties generate steady income through rent payments while appreciating over time, providing a dual benefit.
2. Leverage Opportunities – Investors can use mortgages to acquire real estate with less upfront capital, potentially increasing returns if property values rise.
3. Tax Benefits – Property owners can take advantage of tax deductions, including mortgage interest, depreciation, and maintenance expenses, which can reduce taxable income.

Some REITs to Consider

For those interested in REITs, selecting the right fund is essential. Below are some top-performing REIT ETFs that provide diverse real estate exposure:

• iShares Core U.S. REIT ETF (USRT) – Tracks the U.S. real estate market across retail, healthcare, industrial, and residential properties. Offers a diversified portfolio with an expense ratio of just 0.08%.
• JPMorgan BetaBuilders (BBRE) – Provides exposure to large, mid, and small-cap U.S. REITs, with a slightly higher SEC yield at 3.78%.
• SPDR Dow Jones REIT ETF (RWR) – Concentrated in retail and residential REITs, with a moderate expense ratio of 0.25% and strong yield.

So, what do we end up with?

Both REITs and physical real estate have their place in a well-diversified portfolio. REITs offer accessibility, liquidity, and tax efficiency, that makes them attractive for passive investors. On the other hand, direct property investments provide control, leverage, and long-term appreciation potential. The best choice depends on an investor’s goals, risk tolerance, and investment horizon. Regardless of the path chosen, real estate remains a cornerstone of wealth-building strategies.