REITs vs Direct Property Calculator

This tool compares two ways to put cash into real estate: REITs (listed property shares) versus buying a property with a mortgage. REITs compound at their total return with no personal leverage. Direct property applies leverage to your deposit, but the borrowed portion carries a mortgage cost, so the return on your equity is the levered property return minus the financing cost.

Worked example: 100,000 in cash. A REIT returning 8% a year grows to about 216,000 over 10 years. For direct property, the same 100,000 is a 25% deposit on a 400,000 purchase (4x leverage) at a 6% unleveraged property return and a 5% mortgage rate. The levered return on equity is 4 × 6% − 3 × 5% = 9%, which compounds to about 237,000 over 10 years — ahead of the REIT here but by a modest margin rather than a wide one once financing is counted.

Leverage works in both directions. The same 4x multiplier that lifts a 6% property return to a 9% return on equity would turn a −3% property year into roughly −27% on equity, which can erode a deposit quickly. Direct property also carries costs this model leaves out: management time, transaction costs, tax treatment, and illiquidity. REITs trade on an exchange and settle in days; a property sale typically takes months.

Quick example

With cash to invest of 100,000, a REIT annual total return of 8%, a property unleveraged return of 6%, a leverage multiplier of 4, and a mortgage rate of 5%, direct property finishes about 20,844 ahead of the REIT over 10 years. Change any figure and watch the output shift — it is often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter Cash to Invest, REIT Annual Total Return, Property Unleveraged Return, Property Leverage Multiplier, Mortgage Rate, and Investment Period. The leverage multiplier and the gap between the property return and the mortgage rate usually tip the answer. Adjusting one input at a time shows which moves the result most.

What's happening under the hood

The REIT side compounds at its total return. The property side compounds at the levered return on equity: the property return times the leverage multiplier, minus the mortgage cost on the borrowed portion. The formula is listed in full below, so you can retrace the calculation by hand.

Why run this

Running the numbers makes the trade-offs concrete. Small changes in the mortgage rate or the leverage multiplier can move the result more than intuition suggests, which is hard to judge without working it out.

What this doesn't capture

This is a simplified model that holds its assumptions constant and applies a single net return each year. It excludes transaction costs, taxes, void periods, changing leverage as equity builds, and market volatility, so the figure is best read as one scenario rather than a forecast.