Should you buy a rental house or own REITs and reinvest the dividends? Dividend investors argue about it all the time. Usually one side says rentals build real wealth, and the other says REITs let you skip the 2am phone calls.
For readers new to the REIT side: VNQ (Vanguard Real Estate ETF) is a low-cost index fund holding hundreds of U.S. real estate companies, from cell towers and data centers to warehouses and apartments. Realty Income (O), NNN REIT (NNN) and Agree Realty (ADC) are net-lease REITs. They own freestanding stores and restaurants on long leases where the tenant pays most property costs, and they're widely held for their monthly or quarterly dividends. All four borrow money, so higher interest rates have weighed on the group, just as they've weighed on anyone buying a house with a mortgage.
We gave both sides the same $40,000. One side bought a $160,000 house, rented it out through a property manager and sold it at the end after every cost and tax. The other put the $40,000 into REITs on day one and reinvested every dividend.
The house finished with more money in every window and every market we tested. Over 10 years, the U.S.-average rental ended at $187,895, against $65,744 for VNQ. The catch: buy the same house today at today's mortgage rates, and it would lose about $174 every month before tax benefits.
The Setup
Our assumptions
| Item | Rental house | REITs |
| Starting cash | $40,000: $32,000 down (20%, no PMI) + $4,800 closing costs (3%) + $3,200 repair reserve | $40,000 invested on day one |
| What it buys | $160,000 house; $128,000 30-year fixed loan | VNQ, or an equal split of O / NNN / ADC |
| Rate / reinvestment | Freddie Mac 30-year rate from the last weekly survey before the Nov 1 purchase, plus 0.625 points for an investor loan: 7.03% (2006), 4.72% (2011), 4.10% (2016) | All dividends reinvested |
| Income | Rent of $1,280/month (0.8% of price), growing with the BLS rent index for that market | Dividends as actually paid |
| Costs | 6% vacancy, 9% property management; property tax 1.0%, insurance 0.6% and maintenance 1.0% of home value each year | Fund and company costs already reflected in prices |
| Taxes | 22% on rental profit after interest and depreciation, with losses deductible (the $25,000 passive-loss allowance phases out between $100,000 and $150,000 of income; above that, losses carry forward to the sale, which changes the results here by less than $500); at the sale, 7% selling costs, then 22% depreciation recapture and 15% on the rest of the gain | Taxable account: dividends taxed at 17.6% effective (22% bracket after the 20% Section 199A deduction), 15% on the gain at the end. IRA: no tax |
| Equal dollars | Spare rental cash sits in Treasury bills. In any month the rental needed money from the owner, the REIT side got the same deposit. (In the base case, the rental never needed any.) | |
Data: Freddie Mac PMMS mortgage rates; FHFA house price index (U.S. monthly through Aug 2026; metro areas quarterly through Q2 2026, held flat after that); BLS CPI rent (through Oct 2026); REIT prices and dividends through Nov 11, 2026. Every window ends Nov 11, 2026.
The Results: Money You Walk Away With
U.S.-average house vs REITs, after all costs and taxes, from $40,000
| Start | Years | Rental (after tax) | VNQ (taxable) | O/NNN/ADC (taxable) | VNQ (IRA) | O/NNN/ADC (IRA) |
| Nov 2016 | 10 | $187,895 | $65,744 | $66,634 | $72,181 | $73,298 |
| Nov 2011 | 15 | $285,174 | $107,012 | $144,421 | $124,587 | $172,624 |
| Nov 2006 | 20 | $249,562 | $98,766 | $188,813 | $118,247 | $239,662 |
Annualized, with the rental after tax and the REITs in an IRA:
| Window | Rental | VNQ | O/NNN/ADC |
| 10 years | 16.7% | 6.1% | 6.2% |
| 15 years | 14.0% | 7.9% | 10.2% |
| 20 years | 9.6% | 5.6% | 9.4% |
These are strategy profiles, not recommendations. Suitability depends on individual objectives, risk tolerance, tax situation, time horizon, and broader portfolio construction.
The 20-year window is the closest race. The house was bought near the 2006 peak with a 7.03% loan, and the net-lease basket in an IRA came within a fraction of a point a year of it.
