15 Reasons Why REITs Are a Better Investment Than Income Properties for Retirees

As a retiree, it's important to have a portfolio of investments that keeps generating income. And within the realm of real estate, you can choose between real estate investment trusts (REITs) and income properties. But here's why it may be a better idea to favor the former.

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When you own property, you never know when something might go wrong. And repairs can be very difficult to fit into your budget. The upside of owning REITs is not having to deal with property repairs at all.

Even homes in good condition require ongoing upkeep. With REITs, home maintenance isn't your issue -- or your expense -- to deal with.

The property tax bill you start out with for an income property may not be the bill you end up with in retirement. Your property taxes could rise in time, constituting a strain on your budget.

ALSO READ: How to Calculate Property Taxes

When you own property, there's always the chance it will cost increasingly more to insure. That's not a risk when you simply load your portfolio with REITs.

A vacant rental property could be a disaster for you as a landlord. But if you own REIT shares of companies grappling with vacancies, that issue will be on them to solve.

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Whenever you sign a lease, you run the risk of getting stuck with a dissatisfied tenant. If the idea of dealing with that doesn't appeal to you, REITs may be a better choice.

ALSO READ: Study: Do Landlords Actually Know What Renters Want?

Maintaining a steady stream of rental income can take work, such as renewing and negotiating leases. If you don't want to put in the time, REITs are likely a better option.

When you own an income property, you risk the person you rent it out to causing damage -- damage the security deposit you collected may not cover. If you don't want to bear that financial risk, REITs may be a smarter choice than income properties.

You never know when a tenant might run into hard times. But when a tenant doesn't pay, it's you who gets stuck without that income. That's a risk you may not want to take in retirement, when money may be tighter.

Homes are fairly illiquid assets that can take time to market and sell. If you'd rather have more financial flexibility in retirement, REITs (at least publicly traded ones) are a better choice because you can sell them when you please.

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If you decide to unload an income property, you could get stuck paying a large commission to a real estate agent. Selling REITs, on the other hand, may not cost you a dime.

ALSO READ: Should You Hire a Real Estate Agent to Sell Your Home? Here's What Dave Ramsey Says

Overseeing an income property is a lot of work, so you may feel compelled to outsource a lot of it to a property manager. But that could eat into your profits. With REITs, you'll get to collect your profits in full, whether in the form of share price appreciation or dividend payments.

When you own a bunch of REITs and a need for money arises, you can sell some of them to free up cash. If you own an income property, you can't sell part of that house.

You never know when housing marketing conditions might deteriorate, causing the value of your income property to drop when you may be looking to sell it. But if home values plummet, that won't necessarily impact the value of your REIT holdings since REITs commonly own commercial space.

ALSO READ: 4 Signs That a Housing Market Crash Is Coming

During normal periods, homes tend to appreciate to the tune of about 3% per year. But if you buy the right REITs, you might enjoy even more aggressive growth in your portfolio.

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Both REITs and income properties could serve as nice income sources for you in retirement. But all told, REITs tend to be a lot less risky and a lot less work. And you may want to favor them for those reasons alone.

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