Real estate is a popular investment but requires significant capital and management. REITs offer property exposure without buying physical buildings.
REITs vs Direct Property
| Factor | REITs | Direct Property |
|---|
| Minimum investment | £50-500 (price of one share) | £30,000+ (deposit) |
| Liquidity | Trade like stocks | Months to sell |
| Diversification | Dozens of properties | 1-3 properties |
| Management | Professional management | You are the landlord |
| Costs | Fund fees (0.5-1.5%) | Stamp duty, legal, maintenance |
| Income | Dividends (paid quarterly) | Rental income (monthly) |
| Control | No control over properties | Full control |
| Leverage | Fund uses debt | You can use a mortgage |
What Are REITs
| Aspect | Details |
|---|
| Definition | Real Estate Investment Trust — a company that owns income-producing property |
| Structure | Must distribute 90% of taxable income as dividends |
| Types | Residential, commercial, industrial, healthcare, data centres |
| UK REITs | Landsec, Segro, British Land, Derwent London |
| US REITs | Realty Income, Prologis, Equinix |
Types of REITs
| REIT Type | Properties | Income Stability |
|---|
| Residential | Apartments, single-family rentals | Moderate |
| Commercial | Office buildings | Lower (post-pandemic) |
| Industrial | Warehouses, logistics | High |
| Healthcare | Hospitals, care homes | High |
| Data centres | Server facilities | Very high |
| Mortgage REITs | Lend money for mortgages | Variable |
Direct Property Investing
| Cost | Typical Amount |
|---|
| Deposit (25%) | £37,500 on £150,000 property |
| Stamp duty | £2,500-7,500 |
| Legal fees | £1,000-2,000 |
| Survey | £500-1,500 |
| Total upfront | £40,000-50,000 |
Rental Yield
| Property Type | Gross Yield |
|---|
| UK average | 4-6% |
| London | 3-4% |
| Northern England | 5-8% |
| Student housing | 6-10% |
| HMO (house in multiple occupation) | 8-12% |
REIT Dividend Yields
| REIT | Yield (2026) |
|---|
| Realty Income (US) | ~5% |
| Landsec (UK) | ~6% |
| Segro (UK) | ~4% |
| VNQ (US REIT ETF) | ~4% |
Bottom Line
For beginners, REITs are usually better than direct property. They offer instant diversification, liquidity, and professional management with a small investment. Direct property requires significant capital, ongoing management, and carries concentration risk. REIT dividends are taxed as income. Direct property gains may be subject to capital gains tax. If you want simplicity and diversification, buy a REIT ETF. If you want leverage (mortgage) and control, direct property can work with sufficient capital and tolerance for hassle.
This content is for educational purposes only. Not financial advice. Do your own research before investing.