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REIT vs. Real Estate

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Want to jump straight to the best? Diversyfund is definitely the best real estate investing platform for most people.

When most people think about investing in real estate, they assume that they’ll need to take out a mortgage and invest in a property directly. While direct real estate investing is an excellent way to expand your income and increase your net worth, it’s not the only option you have to invest in property. A real estate investment trust (REIT) is a corporation that owns and manages real estate or real estate debt. REITs provide you with an easy way to invest in real estate without the hassle and expense of owning and managing a property on your own.

Fundamental Difference

Direct real estate investing involves the purchase of a property. You can purchase a property in cash or using a home loan called a mortgage. After you close on your loan or make an agreement with the seller, you own the home and can use it how you like assuming that you stay on top of your mortgage payments. Some investors “flip” houses by fixing them up and putting them back on the market quickly while others rent out their investment properties to long-term tenants and create a stream of income by charging rent.

When you invest in a REIT, you don’t own any type of property. Instead, you’re purchasing shares of stock issued by a corporation that owns or manages property. Shares of REITs trade the exact same way as individual shares of other types of stock, meaning that they’re highly liquid. Minimum investments are also lower when you invest with REITs than when you purchase real estate directly. 

Stronger Return Potential

REITs have a history of outperforming the real estate market at large. From 1977 to 2010, investments in REITs have returned about 12% each year. This return is significantly more than the S&P 500 overall, which tends to return about 10% each year. Real estate in the U.S. has historically risen by 3% to 5% annually, though this percentage can vary widely depending on where the home is located.

While this data might seem like a slam-dunk for REIT investors, it doesn’t give a complete picture of each investment’s potential. When you invest in property directly, you have the potential to create another stream of income through rent, which isn’t considered in the calculation of rising home prices. Even if you decide not to rent out your home, the property has functional utility because you can live in it or use it as a vacation property. The best choice for your real estate investment will vary depending on your needs, where you live, your unique level of risk tolerance and more. 

REITs: Pros and Cons

First, let’s take a look at some of the benefits and drawbacks that come along with investing in REITs.  

REIT Pros

  • You can purchase a REIT using the same method as stocks. This makes it significantly easier to invest in a REIT than a piece of real estate.
  • REITs have lower minimum investments than property. You can purchase 1 share of a REIT for less than $100 in many cases. Some brokers even allow you to purchase fractional shares, which lowers your minimum investment to $1.
  • REITs provide you with a truly passive way to invest in the real estate market. After you purchase your shares, the company will directly distribute dividends to you through your brokerage platform.
  • REITs have higher liquidity because you can buy and sell them using the same method as any other share of stock. If you have an emergency expense, you’ll have a much easier time accessing your capital if it’s held in REITs when compared to real estate. 

REIT Cons

  • While REITs are easier to invest in and come with lower minimum investments, they also give you much less control over where your money goes. You can’t choose where to invest and you can’t devote your investment to a specific property in the REIT’s portfolio. If the managers of the REITs mismanage your money or the REIT goes bankrupt, you could end up losing a significant amount of money.
  • REITs trade on the stock market, which means that they’re subject to market conditions. If the market crashes, your REITs will decrease in value much faster than a similar investment in property. This makes REITs more volatile investments. 

Real Estate: Pros and Cons

Now, let’s take a look at a few of the benefits and drawbacks that come with investing in property directly.  

Real Estate Pros

  • Real estate gives you direct control over your investment. You get to choose how the property is used, how much you’ll charge in rent, any upgrades you need to make to the space and more. If you decide to sell the property, you have the final say on how much the property sells for.
  • If you rent out your property, you can create a reliable stream of income each month. You can interview tenants and draw up a lease agreement that ensures that you’ll receive a monthly rental payment each month.
  • Real estate is a more stable investment when compared to REITs. It’s very unlikely that your investment in a property will ever be worth $0 — which is possible if you invest in a REIT that goes bankrupt. 

Real Estate Cons

  • Real estate investments come with a much higher initial investment. Depending on the type of property you’re purchasing, you could need a down payment equal to as much as 25% of the value of the property. This is in addition to closing costs, which usually average around 3% to 5% of the value of the home you’re buying.
  • As soon as you become a landlord, you forfeit certain rights to your property because your tenants have the right to enjoy the space in private. For example, in most states, it’s against the law for a landlord to enter a unit without at least a 24-hour notice except in the event of an emergency.
  • If your tenant stops paying rent, you must legally evict them. This can be an expensive and time-consuming process.
  • Real estate properties require a large amount of work and ongoing maintenance to retain their value. Even as a landlord, real estate investing is not a truly passive form of income. 

Best Online Brokers for REITs

If you’ve ever bought or sold shares of stock before, you already understand the REIT-buying process. Don’t have a brokerage account? Consider a few of our top choices below.  

Best For
Intermediate Traders and Investors
Overall Rating
Get started securely through Webull’s website
Best For
Intermediate Traders and Investors
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in mutual funds, bonds or OTC stocks
Best For
Options Trading
Overall Rating
Get started securely through TD Ameritrade’s website
Best For
Options Trading
N/A
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Minimum Investment
$1,000
Fees
0.85% asset management fee per year
get started securely through Fundrise’s website
Minimum Investment
$1,000
Fees
0.85% asset management fee per year
1 Minute Review

Fundrise makes real estate investing affordable to investors. The easy-to-use crowdfunding platform gives you a fixed rate of return on top real estate properties in the U.S. 

Here’s why investing your money through Fundrise can improve your portfolio and earn you a reliable source of income.  

Best For
  • Investors with a limited financial budget
  • Investors looking to instantly diversify their portfolio
  • Long-term investors with at least 5 years of commitment
  • Investors looking to earn fixed returns higher than 8%
  • Passive investors who do not want to monitor the market regularly
  • Investors looking for a transparent investment process
Pros
  • Low minimum balance to sign-up for an account
  • Plenty of low-cost real estate investments
  • Many listed properties project a lower risk rate
  • Wide range of real estate investments in prime locations
  • Open to non-accredited investors
  • Regulated by the SEC
  • Consistent track record of high returns
Cons
  • Charges a fee on early withdrawals from investments
  • Customer support does not feature live chat
  • Liquidity issues as eREITs and eFunds are not exchange traded

Best Real Estate Investment Platforms

You can also invest in real estate through a real estate investing platform. These platforms make it easier to compare commercial options and pool your money with other investors to access a more diverse range of options. Browse a few of our favorite real estate investing platforms below. 

Minimum Investment
$1,000
Fees
average 1-2%
Get started securely through Yieldstreet’s website
Minimum Investment
$1,000
Fees
average 1-2%
1 Minute Review

Yieldstreet is an alternative investment platform that allows you to access unique, diversified and expert-reviewed investments. From real estate offerings to works of art, Yieldstreet offers investments that have low correlations with the general markets, meaning they can act as a new source of portfolio diversity.

Yieldstreet’s platform is easy to initiate and use — open an account in just a few minutes and begin browsing available investments before your account is fully verified. Due diligence information is easy to find and clearly laid out, and most investments include additional resources to learn more about the investment’s industry or category. Although the majority of investments are only open to accredited investors, anyone can invest in Yieldstreet’s Prism Fund.

Best For
  • Passive income generation
  • Accredited investors
  • New investors looking for an intuitive platform
Pros
  • Wide range of expert-reviewed alternative investments
  • Investments that are pre-funded by Yieldstreet
  • Prism Fund open to non-accredited investors
Cons
  • Majority of investments only open to accredited investors
Minimum Investment
$10,000
Fees
1% – 1.75%
Get started securely through CrowdStreet’s website
Minimum Investment
$10,000
Fees
1% – 1.75%
1 Minute Review

CrowdStreet is a commercial real estate investing platform where people can invest directly in commercial projects. Unlike a brokerage firm, CrowdStreet isn’t a middleman. Instead, the platform acts as a marketplace where investors can pick and choose the best deals for their time horizon and strategy.

Available investments range from family living spaces to office buildings to storage facilities and investors can sign up for a free membership. Your investment options are limited to what’s live on the Marketplace and you’ll need capital to build a diverse real estate portfolio. Only accredited investors can access deals through CrowdStreet.

Best For
  • Investors looking for diversification away from stocks
  • Real estate investors interested in new opportunities
  • Accredited investors with lots of capital at their disposal
Pros
  • Unique opportunities available
  • Makes real estate accessible and understandable
  • Investors can devote capital to both debt and equity offerings
  • Offers quality education materials and answers to FAQs
Cons
  • Real estate is highly illiquid
  • Most properties require a minimum $25,000 investment
  • You’re limited to what’s on the CrowdStreet Marketplace
Minimum Investment
$500
Fees
No management fees
Get started securely through Diversyfund’s website
Minimum Investment
$500
Fees
No management fees
1 Minute Review

DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.

DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.

Best For
  • Those looking for an alternative investment beyond stocks and bonds
  • Individuals who aren’t sure they want to be landlords in the traditional sense
  • Investors who aren’t accredited
Pros
  • Only need to pony up $500 to get started
  • Open to investors all over the world
  • No expensive broker fees
Cons
  • You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
  • There’s only one real investment option, the DiversyFund Growth REIT

Adding Real Estate to Your Portfolio

Struggling to decide between investing in property or a REIT? Many investors choose to do both, investing in a single-family home to use as a primary residence and invest in REITs through their 401(k) or IRA. Planning your future real estate investments can help you lay out a path for a higher level of diversification. 

Accelerate Your Wealth

DiversyFund accelerates your wealth creation by reinvesting cash flows from the properties — the DiversyFund Growth REIT is a public non-traded REIT designed to build wealth by investing in multifamily real estate and intends to build wealth over an approximate 5-year timeline. You don’t have to be an accredited investor to invest in Diversyfund. Open a Diversyfund account today.