REITs vs. Direct Real Estate Ownership: What Are The Differences?

Real estate remains a cornerstone of many investment portfolios, offering both dependable income and the potential for long-term appreciation. Investors seeking exposure have various options, although many are more familiar with traditional direct ownership, involving hands-on stewardship of individual assets. One of the most common alternatives are real estate investment trusts, which are publicly traded vehicles that pool capital to acquire and manage a diversified mix of commercial and residential properties. 

Each approach carries its own blend of liquidity, control, risk diversification, tax treatment, and capital outlay. By understanding these differences, Canadian investors can tailor their real-estate allocations to match their financial goals, risk tolerance, and preferred level of involvement.

Real Estate Investment Trusts (REITs)

REITs are pooled investment vehicles, often structured as corporations or trusts, that own and manage a broad mix of income-producing real estate assets, such as retail centers, office buildings, industrial facilities, residential complexes, and niche property types. By design, they distribute the bulk of their taxable earnings to investors as dividends, which helps maintain their favourable tax treatment at the entity level. Because REIT shares trade on public exchanges like stocks, investors benefit from regular liquidity and can typically enter with the cost of a single share.

Direct Property Ownership

Direct ownership means purchasing one or more individual properties and overseeing every aspect of their operation. Investors arrange financing, handle mortgage payments, coordinate repairs and ongoing maintenance, screen and manage tenants, and ensure adherence to local regulations. In return, they retain full control over property improvements, tenant selection, and management strategies, allowing for hands-on value creation and customization.

Differences Between REITs and Direct Ownership

Understanding how each approach differs in key areas is important for determining which structure aligns best with investment objectives and individual circumstances.

Liquidity and Accessibility

REIT shares trade on public exchanges like stocks, allowing investors to buy or sell anytime during trading hours with only modest transaction fees. Direct real estate, by contrast, requires a property sale process that can span months and involves significant closing costs, taxes, and other expenses, making it much less liquid.

Control and Management

Investing in REITs is largely passive: professional teams handle acquisition, leasing, financing, and maintenance, so you collect distributions without day-to-day oversight. Direct ownership demands hands-on involvement every step of the way, securing financing, coordinating repairs, vetting tenants, and navigating local rules, but grants you full decision-making authority and the freedom to implement customized value-add strategies.

Diversification and Risk

REITs inherently spread capital across more properties, types, and regions, which helps smooth out the impact of any one underperforming asset. If you own just a few properties outright, your portfolio is more exposed to local market shifts, tenant vacancies, or unexpected repair bills, amplifying the risks tied to individual assets.

Returns and Performance

REIT investors typically earn regular distributions plus any share-price appreciation, though overall returns can fluctuate with interest rates and sector trends. Direct landlords generate rental income and benefit from property appreciation, but both yield and growth depend heavily on location, management quality, and timing of purchase and sale.

Tax Considerations

REIT distributions are treated as ordinary income when received in non-registered accounts, though they can grow tax-deferred within registered plans. Direct owners can deduct depreciation allowances against rental income each year, but must recapture those deductions as income when the property is sold.

Costs and Barriers to Entry

A key difference is accessibility; REITs require only the price of a single share to start and sidestep property-level fees, making them accessible even with modest capital. Buying a rental property typically calls for a substantial down payment plus closing costs, higher financing rates, and ongoing obligations like property taxes, insurance, and maintenance reserves.

Both REITs and direct real estate ownership serve important roles in a Canadian investor’s toolkit. REITs shine in accessibility, liquidity, and diversified income, while direct investment offers control, tailored value creation, and depreciation benefits. Many investors find that a blended approach, combining REIT allocations with select property holdings, delivers a balance of flexibility, growth potential, and tax efficiency that fits their needs. However, thorough research and due diligence is necessary to determine the strategy and properties or investment products that align best with individual goals and needs.