REIT vs Real Estate Developer

Although both offer opportunities for generating income through premier real estate property, they have different roles in the overall scheme of things.

A Real Estate Investment Trust (REIT)

is a type of corporation with a special tax status that is uniquely designed for owning real estate properties. It is managed by a professional management team, with all of the shares held by investors.

REIT typically purchases existing, fully-rented properties and distributes cash flow from them to their shareholders, which is a requirement that 90% of its net income be paid as dividends.

A REIT is a real estate investment company. That means that they own and hold title to real estate. They also most likely rent that real estate for profit.

Pros: suitable for any budget, higher than average dividends, and potential for appreciation

Cons: Property-specific risks

A Real Estate Developer

is a business that creates new real estate property. In doing this, the developer is like the producer of a play: just like the producer decides what show to present, buys the rights to play, selects and hires the director, actors, and orchestra, the developer finds and buys the land, selects and hires the architect, engineer, and construction company, arranges finance and sells or rents finished properties. Profit from the investment is realized at the time of sale of the property.

Pros: have more choices to consider.

Cons: require a significant amount of time and effort, illiquid.

Bottom line

REIT holds property and gains profits while Real Estate Developer builds and sells properties.

Forbes: “Data Proves REITs Are Better Than Buying Real Estate”

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