REITS and REI both have to do with real estate but they are totall different. REITs are a stock investment. People buy them for yield (% return). When interest rates are expected to go up (like this year) REITs generally go down. You still have the yield, but you may lose more in principal. If you just want to hold if for like 20 years and get 5% a year, then a REIT might be a good choice.
As stated above, the advantages of buying Real Estate are: Leverage, Passive Cash Flow, and tax advantages. To get leverage you need to get a mortgage loan, so you'll need to qualify for the loan. So if you were to go to a bank and say I make $x000/year and here are my expenses, they'll tell you what your monthly payment can be. Then you have to work out how much money you need for a down payment. Usually for an investment property (not a primary residence), you'll have to put down at least 20%. So if you wanted to buy a place for $500k, you put down $100k and your payments might be $3000/month on the $400k loan. To manage that you might have to be making $10,000/month depending on your other expenses. then if the property appreciates by 5%/year. After two years it's worth $550k and you've make 50% on your down payment. That's leverage. Of course you're paying the $3000/month. That's where the passive income comes in.
Ideally you want to buy a place where you can rent it out for more than your monthly payments (mortgage, property taxes, property management fee, etc). This is called positive cash flow. The ability to get positive cash flow is going to vary by location. You'll find that in hot markets (like San Francisco), you won't get positive cash flow on 20% down. But maybe if you go somewhere else like Austin, TX it might work (just guessing). If you have a mortgage of $3000 per month and you can rent for $4000, then after you pay the property manager, property taxes and other stuff, you might have a few hundred profit every month. If you make $250 positive cash flow/month, that $3000/year which will give you 3% on your $100k down payment ... every year. then after a few years you can increase your rent and get better positive cash flow. Meanwhile the underlying property value is increasing, by maybe 4-5%/year and since you are leveraged you are making 20-25%/year
So the magic of real estate is that somebody else is paying your mortgage, hopefully you are getting some cash out (passive income) and you are keeping the (leveraged) appreciation. Then depending on your tax situation, you may make more or less additional gains by being able to deduct property taxes and interest payments from your taxes, that could also be used to calculate whether or not you have a positive cash flow situation.
Of course you can just buy a place for $200k, pay for it in cash and collect the rent that might be $1000/month and then you've got passive income of $12k/year which is around a 6% return on investment (but it will be less after property taxes, expenses and management fees). Plus you hopefully still get appreciation of 4-5%/year.
The hardest thing is to find a location where the numbers work. Once you do, go to zillow or redfin and get comps (how much places are selling and renting for). your key numbers will be cost per ft2 and rental price per ft2 based on the size of the place (2BR, 4BR, etc). So based on the rental price per square foot, you'll know whether or not you can get positive cash flow. Once you have all those numbers find a good realtor and send them out to find places that meet your criteria. The key to this is to get a good real estate agent on the front end and a good property manager to take care of it. The property manager will charge 8-10% of the monthly rental price.
If you don't want to put in the homework and find a good location, then do research to come up with comp requirements to make the numbers work, buy the REIT and get your 5%.
As stated above, the advantages of buying Real Estate are: Leverage, Passive Cash Flow, and tax advantages. To get leverage you need to get a mortgage loan, so you'll need to qualify for the loan. So if you were to go to a bank and say I make $x000/year and here are my expenses, they'll tell you what your monthly payment can be. Then you have to work out how much money you need for a down payment. Usually for an investment property (not a primary residence), you'll have to put down at least 20%. So if you wanted to buy a place for $500k, you put down $100k and your payments might be $3000/month on the $400k loan. To manage that you might have to be making $10,000/month depending on your other expenses. then if the property appreciates by 5%/year. After two years it's worth $550k and you've make 50% on your down payment. That's leverage. Of course you're paying the $3000/month. That's where the passive income comes in.
Ideally you want to buy a place where you can rent it out for more than your monthly payments (mortgage, property taxes, property management fee, etc). This is called positive cash flow. The ability to get positive cash flow is going to vary by location. You'll find that in hot markets (like San Francisco), you won't get positive cash flow on 20% down. But maybe if you go somewhere else like Austin, TX it might work (just guessing). If you have a mortgage of $3000 per month and you can rent for $4000, then after you pay the property manager, property taxes and other stuff, you might have a few hundred profit every month. If you make $250 positive cash flow/month, that $3000/year which will give you 3% on your $100k down payment ... every year. then after a few years you can increase your rent and get better positive cash flow. Meanwhile the underlying property value is increasing, by maybe 4-5%/year and since you are leveraged you are making 20-25%/year
So the magic of real estate is that somebody else is paying your mortgage, hopefully you are getting some cash out (passive income) and you are keeping the (leveraged) appreciation. Then depending on your tax situation, you may make more or less additional gains by being able to deduct property taxes and interest payments from your taxes, that could also be used to calculate whether or not you have a positive cash flow situation.
Of course you can just buy a place for $200k, pay for it in cash and collect the rent that might be $1000/month and then you've got passive income of $12k/year which is around a 6% return on investment (but it will be less after property taxes, expenses and management fees). Plus you hopefully still get appreciation of 4-5%/year.
The hardest thing is to find a location where the numbers work. Once you do, go to zillow or redfin and get comps (how much places are selling and renting for). your key numbers will be cost per ft2 and rental price per ft2 based on the size of the place (2BR, 4BR, etc). So based on the rental price per square foot, you'll know whether or not you can get positive cash flow. Once you have all those numbers find a good realtor and send them out to find places that meet your criteria. The key to this is to get a good real estate agent on the front end and a good property manager to take care of it. The property manager will charge 8-10% of the monthly rental price.
If you don't want to put in the homework and find a good location, then do research to come up with comp requirements to make the numbers work, buy the REIT and get your 5%.