In 2018 I had two parallel real-estate experiments. One was a one-bedroom condo I bought as a rental in a small city in upstate New York where my partner had family. The other was a small portfolio of US REITs — VNQ, plus three individual names — that I had been adding to monthly for two years. I held both through the end of 2024. This piece is what I learned by comparing them honestly.
Setup: what I owned
The condo: $112,000 purchase price, 20% down ($22,400), 30-year fixed mortgage at 4.625%, in a building with a HOA. Bought July 2018. Rented to a single tenant for the entire holding period through a property manager I never met in person.
The REITs: A simple split — 60% in Vanguard's VNQ ETF, 40% across three individual names (one residential REIT, one industrial, one healthcare). Total invested at start: $22,400, deliberately matched to the condo down payment. Reinvested all distributions through DRIP, which I would not do the same way again — more on that in the DRIP piece.
From day one I treated both as a six-year experiment and kept a spreadsheet for each.
The rental, all-in
| Line item | Year 1 | Year 6 | 6-yr total |
|---|---|---|---|
| Gross rent collected | $11,400 | $14,400 | $77,940 |
| Vacancy (1.2 mo total) | $0 | $0 | −$1,420 |
| Mortgage interest paid | −$4,090 | −$3,180 | −$22,470 |
| Property tax | −$1,720 | −$2,140 | −$11,580 |
| HOA | −$2,160 | −$2,640 | −$14,400 |
| Insurance | −$540 | −$720 | −$3,720 |
| Property management (8%) | −$912 | −$1,152 | −$6,235 |
| Repairs & capex | −$320 | −$2,840 | −$8,640 |
| Net cash flow | +$1,658 | +$1,728 | +$9,475 |
Capital appreciation: sold in early 2025 for $148,000 — a $36,000 gross gain. Mortgage principal paid down over the holding period: roughly $12,400. So the equity at sale was the original $22,400 down + $12,400 principal pay-down + $36,000 appreciation = $70,800 of equity, against $22,400 originally put in. Subtract roughly $9,200 in closing/selling costs and capital gains tax of about $5,400 (most of the gain was sheltered by the primary-residence exclusion the buyer thought I qualified for; I did not — long story), and the cleanest after-tax exit was about $56,200.
Add the $9,475 of net rental cash, and the total six-year economics of the condo was approximately $43,275 of gain on the original $22,400 — call it 13.5% annualized.
The REIT portfolio, all-in
The REIT portfolio is much easier to summarize because there are no operating expenses to deduct.
| Component | Amount |
|---|---|
| Initial investment, July 2018 | $22,400 |
| Distributions received, 2018–2024 | $7,930 |
| Distributions reinvested (DRIP) | $7,930 |
| Account value, Dec 2024 | $39,840 |
| Total return (incl. reinvested distributions) | +$17,440 |
That is a total return of 78% over 6.5 years, or roughly 9.4% annualized. The figure is depressed by the bad REIT cohort of 2022–2023, when rising rates pressured the sector heavily. In the 2018–2021 window the same portfolio was annualized around 11%.
The honest comparison
On annualized return, the condo won — 13.5% vs. 9.4%. But that comparison is not fair without three adjustments.
Adjustment one: time. The condo cost me, conservatively, 80 hours over six years in property-manager coordination, tax-prep complexity, two emergency repair calls, and one minor tenant dispute. The REITs cost me, generously, four hours — the time to read each year's 10-K for the three individual names. At even $30/hour for my time, the condo's gain shrinks by $2,400. Annualized return drops to about 12.5%.
Adjustment two: risk. The condo's return depended on one tenant in one unit in one building in one local market. The REIT portfolio held thousands of properties across multiple sectors. The condo had real concentration risk that the spreadsheet does not show.
Adjustment three: leverage. The condo's outperformance was, in large part, the leverage. With 20% down, every dollar of appreciation showed up at 5x on my equity. The same leverage works against you if the market goes the other way. The REITs were unlevered.
A leveraged property in a rising market beats an unlevered portfolio almost every time. The trick is that "rising" has to last longer than the mortgage.
What I would do again
I would not buy another single rental. The cash-flow margin in any market I would now consider is too thin, and the time cost — even with a manager — is not zero. The financial outcome was good; the experience was not as passive as the brochures.
I would, and do, hold REITs. Inside an IRA or HSA, they are tax-efficient because the (non-qualified) distributions are sheltered. In a taxable account they are tax-inefficient, which is why the bulk of my exposure now sits in a Roth.
The honest verdict: rental property can outperform REITs in a rising market with leverage, at a cost of time and concentration risk that most spreadsheets do not bother to charge. REITs underperform in the same window, with none of the operational drag. Which one is better depends less on the return and more on how passive you actually want your passive income to be.