Go Back

Updated on
3/18/2024

REITs vs. Traditional Real Estate Investment

Written by: 
Naman

Investing in real estate is a time-honored strategy for wealth accumulation and income generation. However, the advent of Real Estate Investment Trusts (REITs) has introduced a modern twist to this traditional investment avenue. This article explores the nuances of investing in REITs versus traditional real estate, diving into their pros and cons, investment mechanics, and suitability based on investor profiles.

What are REITs?

REITs are corporations that own, operate, or finance income-generating real estate across various sectors. They function like mutual funds in the real estate sector, offering investors a share in a portfolio of properties. They come in three primary types: equity REITs, mortgage REITs, and hybrid REITs​​.

Pros of REITs

  • Liquidity: REITs are traded on major stock exchanges, allowing investors to buy and sell shares with ease, unlike physical real estate​​.
  • Dividend Income: By law, REITs must distribute at least 90% of their taxable income to shareholders, often resulting in attractive dividend yields​​.
  • Diversification: They provide exposure to various real estate sectors without the need to own the property directly​​.

Cons of REITs

  • Market Volatility: Being traded like stocks, REITs are subject to the fluctuations of the stock market​​.
  • Limited Control: Investors in REITs don’t have control over property management decisions​​.
  • Tax Implications: The dividends might not have favorable tax treatment compared to other investment incomes​​.

Traditional Real Estate Investment

Traditional real estate investment involves purchasing tangible property. This can range from residential homes to commercial spaces.

Pros of Traditional Real Estate:

  • Control: Investors have complete control over their investment, from tenant selection to property upgrades​​.
  • Appreciation Potential: Properties often appreciate over time, providing potential capital gains​​.
  • Tax Benefits: Direct real estate investment offers various tax advantages, such as depreciation deductions​​.

Cons of Traditional Real Estate:

  • Illiquidity: Selling physical property can take considerable time​​.
  • Management Intensity: Active involvement in property management is required unless a property manager is hired​​.
  • Higher Capital Requirement: Significant upfront investment is needed, including down payments and maintenance costs​​.

Comparative Analysis

  • Investment Threshold and Returns: REITs require a lower initial investment compared to direct real estate. The potential returns in REITs come from dividends and share value appreciation, while in real estate, it's through rental income and property value appreciation. However, these returns vary widely based on market conditions and property management​​​​.
  • Risk and Time Commitment: Both investment types carry risks, but they differ in nature. Real estate values can fluctuate, and properties can remain vacant, whereas REITs are subject to market risks and economic conditions. As for time commitment, REITs are more hands-off, while direct real estate requires active management​​​​.
  • Tax Implications: Direct real estate investments often come with more tax breaks than REITs. While REITs offer a simpler investment model, they may not be as tax-efficient, particularly concerning dividend income​​​​.
  • Liquidity and Costs: Publicly traded REITs offer more liquidity compared to real estate. The cost of investing in real estate is generally higher, considering factors like repair, insurance, and property taxes. REITs, especially publicly traded ones, might have lower associated costs​​​​.

Suitability Based on Investor Profiles

REITs are suitable for:

  • Investors seeking liquidity and ease of entry and exit.
  • Those looking for diversification in their investment portfolio.
  • Investors who prefer a hands-off approach and are content with limited control.

Traditional Real Estate is suitable for:

  • Investors who prefer direct control over their investments.
  • Those with a higher capital outlay and a willingness to manage properties.
  • Investors seeking long-term appreciation and significant tax advantages.

Conclusion

Deciding whether REITs or traditional real estate is the "better" investment is not a straightforward answer. It largely depends on an investor’s financial capacity, risk appetite, time horizon, and management preference. While REITs offer an easy, liquid entry into real estate investment with potential for regular income through dividends, they come with market risks and limited control. On the other hand, traditional real estate offers greater control, potential for appreciation, and substantial tax advantages, albeit with higher capital requirements and management intensity.

REITs are a good fit for investors seeking liquidity, ease of entry and exit, diversification in their investment portfolio, and a hands-off approach with limited control. Traditional real estate, conversely, suits investors who prefer direct control over their investments, have a higher capital outlay, and are willing to engage actively in property management.

These investments cater to different financial goals and lifestyles. An investor's decision should align with their long-term financial objectives, investment strategy, and the level of involvement they wish to have in their investment. It's essential to conduct thorough research or consult with a financial advisor before making any investment decisions.

For more detailed information and investment opportunities, you can visit Landa, an app providing accessible real estate investment opportunities.

‍

Ready to start investing?

Sign up for Landa and start investing in real estate.

Get Started

Real estate investing within reach

Get Started

Investors

PropertiesLendEntity AccountsCareersAdvisorsBroker DealersLanda PremiumDirect ListingGet FinancingAPI Access

Residents

Pay RentService RequestsResources

Learn

Education CenterHelp CenterBlogDictionaryMore Real Estate

Company

About UsBusiness ModelLegalSEC FilingsContact UsCareersVendors

Markets

AtlantaNew YorkTampaJacksonvilleOrlandoBirminghamCharlotte

All Rights Reserved © Landa Holdings, Inc

Landa Holdings, Inc. ("Landa Holdings") operates the www.landa.app website (the "Site") and the Landa mobile application (the "App")(collectively, the “Platform”). Landa Holdings manages Landa App LLC, Landa App 2 LLC, Landa App 3 LLC (“Landa Issuers”), and raises funds and facilitates the issuance of shares for the Landa Issuers entities through the Platform pursuant to Regulation A under the Securities Act of 1933 (“Regulation A”).

Neither Landa Holdings nor any of its affiliates is a registered broker-dealer or investment advisor. All securities-related activity for the Landa Entities is conducted through Dalmore Group LLC (“Dalmore”), a registered broker-dealer and member of FINRA/SIPC, You can review Dalmore's brokercheck for Dalmore.

Landa is not a bank.

Further, Landa Management LLC, a wholly-owned subsidiary of Landa Holdings, manages Landa Financing LLC (“Landa Financing”), and raises funds and facilitates the issuance of shares for Landa Financing through the Platform pursuant to Regulation A. All securities-related activity for Landa Financing is conducted through Dalmore Group LLC (“Dalmore”), a registered broker-dealer and member of FINRA/SIPC (for more information on Dalmore, review Dalmore’s brokercheck.

‍You should speak with your financial advisor, accountant, and/or attorney when evaluating any offering of securities. Neither Landa Holdings, Landa App, nor Dalmore makes any recommendations or provides advice about investments, and no communication, through this website or in any other medium, should be construed as a recommendation for any security offered on or off this investment platform. Nothing in this material should be construed as investment or tax advice, or a solicitation or offer, or a recommendation to buy or sell any securities. The Site and/or the App may make forward-looking statements. You should not rely on these statements but should carefully evaluate the offering materials in assessing any investment opportunity, including the complete set of risk factors that are provided as part of the offering circular for your consideration.  We urge you to review the applicable offering circular, available here.


All securities offered by the Landa Entities and Landa Financing are deemed “Shares”. Investing in Shares involves risks, and there is always the potential of losing money when you invest in Shares. Past performance is no guarantee of future results. Investments in Shares are speculative and involve substantial risks to consider before investing, outlined in the respective offering materials and including, but not limited to, illiquidity, lack of diversification, and complete loss of capital. An investment in Shares constitutes only an investment in a particular offering and not in Landa Holdings, Landa App, or any of the underlying asset(s). Investors should carefully review the risks located in the respective offering materials for a more comprehensive discussion of risks.

‍
No money or other consideration will be solicited (and if sent, will not be accepted), and no offer to buy Shares of a particular offering can be accepted, and no part of the purchase price can be received until an offering statement filed with the Securities and Exchange Commission (the "SEC") relating to those Shares has been qualified by the SEC. Any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of acceptance given after the date of qualification by the SEC. An indication of interest involves no obligation or commitment of any kind.


Investment overviews on the Platform contain summaries intended for informational purposes only and are not complete. For detailed information, we urge you to refer to the applicable offering circular filed with the SEC. Neither Landa Holdings nor any of its affiliates offers refunds after an investment has been made.

You should speak with your financial advisor, accountant, and/or attorney when evaluating any Shares. None of Landa Holdings or its affiliates, Dalmore makes any recommendations or provides advice about Shares, and no communication, through this website or in any other medium, should be construed as a recommendation or investment advice. Nothing on the Platform should be construed as investment or tax advice, or a solicitation or offer, or a recommendation to buy or sell any securities.The Platform may make forward-looking statements. You should not rely on these statements but should carefully evaluate the offering materials in assessing any investment opportunity, including the complete set of risk factors that are provided as part of the offering circular for your consideration. We urge you to review the applicable offering circular, available here.


All Shares will be issued in electronic form only and will not be listed or quoted on any securities exchange. After a Series’ offering has concluded, we expect that the Public Private Execution Network Alternative Trading System, or PPEX ATS (the “Secondary Trading Platform”), which is registered with the SEC and operated by North Capital Private Securities Corporation (“North Capital”), will be the only venue available for the resale of Shares. Resales of Shares will be conducted by Dalmore, as a broker-dealer member of the Secondary Trading Platform; provided, however, any such resale of Shares will be subject to federal and state securities laws and the restrictions in the Series’ Operating Agreement, and there can be no assurance that an active market for any Shares will develop on the Secondary Trading Platform, that the Secondary Trading Platform will be available to allow resales of Shares to residents of all states, or that the Secondary Trading Platform will be available at all. For these reasons, investors must be prepared to hold their Shares indefinitely.


Disclaimers

Landa Holdings maintains this website for informational purposes only. All offerings of Series’ Shares (and information about each Series and its underlying property) are conducted exclusively on the Landa Mobile App.

All images and figures shown are for illustrative purposes only and are not actual customer or model returns. Landa is not a cryptocurrency app, all monetary values are in U.S dollars and available only to U.S. investors.

20 West 22nd Street , New York, NY, 10010.

All Rights Reserved © Landa Holdings, Inc