For some, owning real estate is a good way to diversify, but can owning a real estate exchange traded fund (ETF) be more beneficial than actually physically owning the real estate?

One big advantage of owning a real estate ETF over a single piece of property is simplicity, states My Money Blog.  An ETF has three marks in the “plus” column:

• It eliminates the trouble of finding tenants, dealing with local municipalities, maintenance issues, price bargaining or obtaining financing
• An ETF offers diversity and exposure to more than one property
• An ETF is more liquid and can be sold at any time – it’s not always so simple when it comes to owning property

As for physical ownership of real estate, it is more beneficial than owning an ETF because one can take advantage of tax benefits, and there are monthly cash flows as well as property appreciation.  Secondly, physical ownership enables one to gain access to detached single-family homes, something that ETFs don’t hold.

Which should you choose? At the end of the day, it is all about how diversified you want to be. After all, a single property could perform better or worse than an ETF, depending on the market.

The iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) is an ETF that tracks the FTSE NAREIT All Residential Capped Index and is the best comparison to physical ownership of real estate.  REZ carries an expense ratio of 0.48%, a current distribution rate of 5.11% and is down 10.4% year-to-date.

For more stories on real estate, visit our real estate category.

Kevin Grewal contributed to this article.

Tags: ETF 101, Real Estate, REZ, Sector ETFs