Should You Buy a Rental Property or Invest in a REIT?
A client once came to me excited about her very first rental property.
She pictured steady cash flow, a growing nest egg, and the pride of owning “real” real estate.
Three months later, she was dealing with a broken hot water tank, a tenant who was late on rent, and more money going out than coming in.
Her dream of passive income suddenly felt… very active.
This is the part of real estate investing people don’t always talk about. Yes, it can be an incredible wealth-builder. But it can also be stressful, risky, and expensive if you don’t know what you’re looking for.
That’s why, for many investors, a REIT (real estate investment trust) can be a smart alternative: you still get exposure to real estate, but without the headaches of tenants, toilets, and unexpected repairs.
So how do you decide which is right for you? Let’s dive in.
What Makes a Rental Property a “Good” Investment?
Not every property is a gold mine. The pros use a few quick rules to test if a deal is worth it:
The 1% Rule: Rent should equal at least 1% of purchase price. A $300,000 property should bring in $3,000/month.
Cap Rate: The annual return before financing. 8–10% is strong.
Cash-on-Cash Return: Your true ROI after the mortgage. Aim for 10%+.
Debt Service Coverage Ratio (DSCR): Rent should cover at least 1.25x the mortgage.
If the numbers don’t add up, the property likely won’t either.
The Reality of Rentals
Even when the math looks good, real estate comes with:
Vacancies that eat into cash flow.
Repairs at the worst possible times.
Tenants who aren’t always reliable.
If you’re hands-on (or willing to hire help), rentals can be powerful. If you’re already stretched thin, they can drain more than they give.
Why REITs Are Different
REITs let you invest in real estate without owning a single property.
They’re accessible (you can start small).
They’re diversified (across apartments, malls, warehouses, even medical facilities).
They’re liquid (easy to buy or sell like a stock).
The trade-off? Less control. And since they trade on the stock market, they can be volatile.
Which One Is Right for You?
Choose real estate if you:
Want control and leverage.
Like the idea of managing and growing a property.
Can handle the risks of a single, concentrated investment.
Choose REITs if you:
Prefer hands-off investing.
Want diversification without the landlord duties.
Like the flexibility of being able to cash out anytime.
The Bigger Truth
Neither rentals nor REITs are “better.” Both can be powerful wealth builders. The question is: What fits your life right now?
Because building wealth isn’t just about chasing the highest return. It’s about creating alignment, with your time, energy, and bigger vision for the future.
Your friend in financial Empowerment,
Kim