Rental Property vs REIT Calculator
Compare returns between direct real estate ownership and REIT investing
Choosing between direct rental property and REITs is one of the most common questions we get from real estate investors. This calculator models both investment types so you can make an informed decision based on your goals and risk tolerance.
Should I invest in rental property or REITs?
Direct rental property offers higher potential returns through leverage, depreciation tax benefits, and appreciation, but requires active management. REITs provide passive income, liquidity, and diversification with lower hassle. Rental typically yields 8-15% ROI while REITs average 6-10%.
- •Rental has depreciation tax benefits (REITs don't)
- •REITs offer instant liquidity (rentals don't)
- •Rental requires active management or property manager
- •REITs are diversified; rentals have concentration risk
Direct rental vs. REIT isn't a tax-only decision, but the tax differences are larger than most investors realize. Direct rentals get depreciation, 1031 deferral, step-up at death, and QBI for some. REITs are easy and liquid but distributions are ordinary income — no preferential dividend rate.
Real-world scenario
$200K to deploy: buy a rental vs. invest in VNQ
Rental option: $200K down on a $500K duplex, $2K/mo cash flow after expenses, ~$12K/yr depreciation shielding about half of it from tax. Plus 3-4% appreciation. REIT option: $200K in VNQ, ~3.5% dividend = $7K/yr taxed as ordinary income (no qualified dividend rate). The rental wins on tax efficiency by ~$3-4K/year — at the cost of being your second job.
The part most people miss
REIT dividends qualify for the 20% Section 199A deduction, which the One Big Beautiful Bill Act made permanent (P.L. 119-21). That's a real benefit most investors miss. A $7K REIT dividend becomes effectively $5,600 of taxable income at the 22% bracket — not as far behind rental depreciation as the raw numbers suggest.
Investment Parameters
Rental Property Assumptions
Maintenance, vacancy, management (typically 30-50%)
REIT Assumptions
Your Tax Situation
A rental loss is passive. It offsets other income only through the $25,000 allowance for active participants or against passive income; otherwise it is suspended and carries forward (Form 8582). Between $100K and $150K of modified AGI the allowance shrinks by $1 for every $2; at $150K or more choose 'No' unless passive income covers the loss. Married filing separately: up to $12,500 (gone at $75K) only if you lived apart all year, otherwise $0. Rental profit after depreciation is taxed at your rate.
Enter Investment Details
Compare rental property returns with REIT investing
Key Considerations
• Rental: Uses leverage (25% down), requires active management, depreciation benefits
• REIT: Fully liquid, diversified, dividends taxed as ordinary income after the 20% §199A deduction
• Rental tax: Profit after depreciation is taxed; a loss saves tax only if you can deduct it this year (passive activity rules)
• Risk: Rentals have concentration risk; REITs are diversified but correlated with stocks
Sources & References
Primary references used for this content
Residential Rental Property
The IRS's primary guide for landlords
View on irs.gov
Investment Income and Expenses
Capital gains, dividends, and investment interest
View on irs.gov
✓2 primary sources; links re-checked on a weekly rotation by the source watcher
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.