Balancing Risk & Return: REITs, Stocks, Bonds Compared

Investors today have more choices than ever when it comes to building income and growth into their portfolios. Four of the most common options are private mortgage REITs, public equity REITs, stocks, and bonds. Each offers distinct benefits and trade-offs, especially when you weigh liquidity, risk, returns, transparency, and tax treatment.

Private Mortgage REITs

Private mortgage REITs pool investor capital to originate or purchase real estate secured loans, usually short-term and first-lien. Investors receive distributions funded by borrower interest payments and origination fees. These shares are not publicly traded, and redemption programs are limited to specific periods.

Pros:

• Attractive income potential from loan interest and fees
• Conservative underwriting (low loan-to-value ratios, shorter terms) can reduce default risk
• Less market-price volatility compared to public securities

Cons:

• Limited liquidity; redemptions may be capped or delayed
• Lower transparency vs. public markets (no daily pricing, fewer disclosures)
• Typically available only to accredited investors with higher minimums 

Private mortgage REITs often target higher yields. They appeal to investors prioritizing income, stability, and diversification.

Public Equity REITs

Equity REITs own and manage income-producing properties such as apartments, office buildings, or warehouses. They trade on public exchanges, and dividends come from rental income and property operations.

Pros:

• Daily liquidity and simple access through brokerage accounts
• Diversification across property types and geographies
• Required by law to distribute at least 90% of taxable income as dividends

Cons:

• Share prices fluctuate with the stock market
• Sensitive to interest rates, cap rates, and property cycles
• Leverage and fees may not be obvious to retail investors

Public REITs are an accessible way to gain real estate exposure while keeping your capital liquid. They are better suited for investors who can handle market swings.

Stocks

Common stocks represent ownership in public companies. Returns come from share price appreciation and, in some cases, dividends.

Pros:

• High upside potential through capital appreciation
• Easy to buy and sell during market hours
• Transparent reporting and analyst coverage provide strong oversight

Cons:

• Highly volatile during downturns
• Dividends are optional, not guaranteed
• Heavily influenced by macroeconomic factors and investor sentiment
• Stockholders pay taxes on dividends and capital gains

Stocks are ideal for growth-focused investors who can tolerate volatility and hold for the long term.

Bonds

Bonds are debt instruments issued by governments or corporations. Investors receive fixed coupon payments and repayment of principal at maturity, assuming no default.

Pros:

• Predictable income stream when held to maturity
• Wide variety of issuers and maturities available
• Generally lower volatility than stocks

Cons:

• Lower return potential compared to equities or REITs
• Prices fall when interest rates rise
• Inflation reduces real purchasing power
• Bond income is taxed as ordinary income, which can reduce net returns.

Bonds are a good fit for conservative investors who prioritize stability and steady income. They provide predictable interest payments and return of principal at maturity if held without default.

Choosing What Fits Your Goals

No single investment vehicle is “best” for everyone. The right choice depends on your income needs, risk tolerance, liquidity preferences, and tax situation. Many investors blend these asset classes to balance growth, stability, and income.

At Red Tower Capital, we specialize in private mortgage REITs such as RTC VI. Contact us today to request a copy of our offering documents or schedule a call. Our team will walk you through eligibility, minimums, distributions, and fees so you can make an informed decision about whether this investment is the right fit for your portfolio.