REITs vs Rental Properties: Which Real Estate Investment Is Better in 2025?
One of the top wealth-building strategies remains real estate, but by 2025, it will be a make-or-break investment. Here is what you should consider when deciding whether to invest in REITs (Real Estate Investment Trusts) or take the hands-on investment approach by putting money into rental properties. Although both provide a means to earn income, appreciate, and protect yourself against inflation, they differ in levels of control, effort, and returns.
In this guide, we compare REITs and rental real estate across the most important factors so you can decide what’s best for you.
What Are REITs?
A REIT is simply a company that owns or finances income-producing real estate. If you purchase shares of a REIT, you’re really purchasing shares in a portfolio of properties, including office buildings, shopping centers, and apartment complexes.
If one is talking about publicly traded REITs, you can buy them on stock exchanges just like other stocks. Investment platforms or funds also offer private REITs or non-traded REITs.
REITs are legally required to pay out at least 90% of taxable income as dividends.
What Are Rental Properties?
Rental properties are physical real estate assets you personally purchase and rent out to tenants. This can include:
- Single-family homes
- Multi-family apartments
- Short-term rentals (e.g., Airbnb)
- Commercial buildings such as retail or office buildings
You generate income through tenant rent and benefit from appreciation and tax advantages over time.
REITs vs Rental Properties: Key Differences
| Feature | REITs | Rental Properties |
|---|---|---|
| Initial Investment | $100–$1,000+ | Typically $25,000+ (down payment) |
| Liquidity | Highly liquid — can be sold anytime | Illiquid — sales take time |
| Effort | None (fully passive) | Active (tenant management, maintenance) |
| Diversification | Spreads risk across many properties | Usually limited to one or two properties |
| Tax Benefits | Limited to dividends | Depreciation, deductions, 1031 exchanges |
| Leverage | No personal leverage with public REITs | Can use mortgages to amplify ROI |
| Control | No control over decisions | Full control of operations and strategy |
REIT Pros and Cons
Pros:
- Low cost of entry
- Instant diversification
- 100% passive income
- Liquid and easy to trade
Cons:
- Less tax-efficient than owning property
- Dividend yields vary with the market
- No control over investment choices
- Sensitive to stock market volatility
Rental Property Pros and Cons
Pros:
- Leverage increases potential ROI
- Strong tax advantages (depreciation, write-offs)
- Control over pricing, tenants, and upgrades
- Monthly cash flow and long-term appreciation
Cons:
- Active management or property manager needed
- Risk of vacancies or bad tenants
- Ongoing maintenance and legal obligations
- Less liquid than REITs
Which Is Better in 2025?
That depends on your capital, goals, and risk tolerance.
Choose REITs if you want:
- A passive, low-maintenance income stream
- Low-capital real estate exposure
- Instant diversification across sectors
- No management headaches and daily liquidity
Choose Rental Properties if you want:
- More control and ability to leverage returns
- Physical asset ownership
- Stronger tax benefits
- Higher long-term wealth creation with equity growth
Pro Tip: Many investors use both. For example, they include REITs in retirement accounts for passive income and hold one or two rental properties for appreciation and tax write-offs.
FAQs
Are the income from REITs monthly or quarterly distributed?
While most REITs pay quarterly dividends, some pay monthly like Realty Income.
Are REITs available for using leverage?
Although REIT shares cannot be personally leveraged, the REIT company may use debt internally to increase returns.
Are rental properties safer than REITs?
REITs are generally more diversified and liquid, but rental properties offer more control and tax advantages. Both carry risk.
Do rental properties still make sense as interest rates continue to rise?
Yes — especially if you’re buying below market or using creative financing. Many urban markets are still seeing rental growth.
Are REIT dividends taxed?
Yes, REIT dividends are taxed as ordinary income unless held in tax-sheltered accounts like IRAs or RRSPs.
