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One financial advantage to buying a property over shares is leveraging by getting a long term mortgage at a rate noticeably lower than historic real estate appreciation and rental income.

A single property has more volatility and higher transaction costs than a well diversified REIT (real estate investment trust) and takes a larger time commitment so can you get a line of credit to invest in a REIT long term at the same sort of rate as a mortgage?

I do actually plan on buying property at some point down the road due to the lifetime ISSA but the longer I build that up the larger sum I can get 25% tax back so in the mean time I'm wondering if a line of credit for a REIT would be a good way to emulate the investment of buying a property with reduced volatility and exchange costs of owning one single property?

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    There is no free lunch. A shareholder has little control over how the REIT is managed, e.g.charging a fat salary, contract operations to cronies that give kickback, over gearing, offload stale property, etc. So I doubt a bank will give you a mortgage on collateral that they can't control the risk.
    – mootmoot
    Dec 11, 2019 at 13:12
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    Attempting to emulate the performance of one asset with a different second asset offers no guarantee of correlation. In fact, at times they can decouple and non correlate. Dec 11, 2019 at 16:26

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so can you get a line of credit to invest in a REIT long term at the same sort of rate as a mortgage?

Very unlikely.

This would be akin to the whole credit default swaps issue in the real estate crash. You would be borrowing money to buy an investment that invests in heavily leveraged properties. However, some people say that margin loans are a really good deal and are suitable for this purpose. For example, if you had over 1 million in assets at Fidelity their margin rates are 5%, if few assets 9.325%.

Personally, even if I did qualify for the 5% rate, I would feel that is a pretty high interest rate and would not take advantage of that offer.

One option would be to just buy a REIT or an index of REITs such as KBWY.

Not everyone agrees with your first paragraph. Rental real estate, IMHO, should be purchased with cash as there is not enough margin in leveraged rentals to overcome the risk.

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    Margin rates at IBKR are 1/2 of Fidelity's 5% rate for over a million in assets and almost 1/3 of Fidelity's 9.325% rate if $100k to $1 million. Plus, there are no points or closing costs per the OP's mortgage thoughts. Dec 11, 2019 at 15:48
  • @BobBaerker thanks for the reminder Bob, where I read about this advocated using interactive broker.
    – Pete B.
    Dec 11, 2019 at 16:10
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I doubt a bank would lend for this purpose at a similar rate as mortgages. One of the reasons mortgage rates are lower than other types of loans is that mortgages are secured with a lien on the property AND property values generally appreciate over time. (Unlike a secured lien on a car.) So most of the time, even a foreclosure can recoup most (if not all) of the loan amount. The bank who owns your mortgage also typically has additional rights, such as:

  1. Right to refuse short sales.
  2. Right to inspect repairs made to the home before endorsing insurance claim checks.
  3. Right to force you to escrow taxes and insurances if you are ever late in paying them.

None of these could be (easily) accomplished by a bank lending money which is slated to be invested in a REIT, and so they may choose to price those loans differently.

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Figure the contango on a buy-side Dow Jones Real Estate futures and it's about 1.3% annually. Of course dividends are not received from the position. The leveraging of the futures position can be less leverage than the minimum margin requirement if wanted and that by having a larger margin balance.

Or some brokerages have margin rates for equities that are less than mortgage rates.

But the publicly-listed REIT business is fairly aggressive in its business activity. Property is sometimes held with short-term revolving credit, mortgages are sometimes interest-only, and property is often bought or sold. It's mostly an income business and not a long-term investment in property. Of course income can grow.

Now if the REIT ignores depreciation to pay more dividend than earnings then the REIT must have confidence in the value of the property and that is interesting.

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