Portfolio a alokace
Real Estate vs. REIT ETF: How to Include Them in Your Allocation
Key takeaways
- A REIT ETF provides real estate exposure from the first thousand crowns; direct property requires hundreds of thousands to millions.
- A REIT ETF is highly liquid — you can sell it in seconds; a property can take weeks to months to sell.
- REIT companies are legally required to distribute a large share of earnings as dividends, which boosts their yield.
- Direct real estate offers mortgage leverage and greater control over the asset.
- Both forms make sense: REIT ETF as a liquid component, physical property as a concentrated leveraged bet.
A REIT ETF gives you real estate diversification at the cost of an ETF — direct property brings leverage and control, but ties up capital and liquidity. The choice depends on your situation, not on a universal rule.
What is a REIT and how does it work?
A REIT (Real Estate Investment Trust) is a special type of company that owns commercial real estate — offices, warehouses, data centres, healthcare facilities, shopping centres. By law it must distribute at least 90% of taxable income to shareholders as a dividend. A REIT ETF then holds dozens or hundreds of such companies at once and trades on exchange like a regular stock.
Direct real estate: pros and cons
- Leverage: a mortgage lets you control an asset worth 3–5× your own capital
- Control: you decide on renovations, tenants, and pricing
- Illiquidity: selling takes weeks to months, transaction costs are 3–5%
- Concentration: one property = one city, one type
REIT ETF: pros and cons
- Liquidity: sell in seconds at market price
- Diversification: hundreds of properties in one ticker
- Low entry: even CZK 1,000 is enough
- Volatility: REIT ETF fluctuates more than physical real estate because it trades on exchange
Tax perspective in the Czech Republic
Dividends from a REIT ETF are subject to withholding tax in the source country and then potentially to income tax in the Czech Republic (15% for individuals). Selling a REIT ETF after three years from purchase or below CZK 100,000 in annual proceeds may be exempt from tax. Physical real estate follows different rules — after five years of ownership (or two years when used as primary residence) the sale is generally exempt. None of this is tax advice; consult a professional for details. See also ETF taxes in the Czech Republic.
For context on how ETFs work in general and how they differ from mutual funds, read what is an ETF.
FAQ
What is a REIT ETF in simple terms?
An exchange-traded fund that invests in companies owning commercial real estate. Because of the legal requirement to distribute most of their earnings as dividends, REIT ETFs rank among the higher-yielding dividend instruments. You buy it like a regular stock.
Which is more profitable — direct real estate or a REIT ETF?
It depends on leverage. With a mortgage, direct real estate can outperform a REIT ETF in absolute return on equity. Without leverage, returns tend to be comparable. A REIT ETF, however, requires no property management, repairs, or tenant communication.
What percentage of a portfolio should go into REIT ETFs?
Typically 5–10% as a supplementary diversification component. A global equity ETF already contains some real estate companies, so a REIT ETF raises the sector weight above the market average — deliberately, not accidentally.
Are REIT ETFs suitable for accumulation?
An accumulating share class of a REIT ETF automatically reinvests dividends and is simpler from a tax perspective in the Czech Republic (no ongoing dividend tax). The distributing class pays dividends to your account — suitable for passive income, but requires a tax return.