For me it's because of convenience and risk. I don't know if you've ever handled tenants or not, but it's a lot of work. You need to interview tenants, sign contracts, make sure they pay on time, make sure that they don't thrash your place, check to see that they pay their utilities bills and so on. If you get a bad tenant, you end up with a lot of trouble. Tenants can run away without paying rent, can damage your place. Non-paying tenants can be hard to evict etc.

As for risk, most people won't be able to afford more than a couple of properties to rent out. If you're having a hard time getting a tenant for a place for a few months, the hit you take on your returns is really bad. REIT companies will tend to have a broader range of properties, and so will always have at least some income even if some tenants leave.

Income/profit made from property rental also need to pay personal income tax one.
It is not tax exempted.

Pool money with family members? wait until dispute happens time, it is worst and complicated than reit.
This is not new, we can see many many cases brother, sister, even parent dispute with joint name property. Under joint name property, either one refuse to sign, the property is doom, cannot do anything.

I bet you haven't deal with tenant before.
Sometimes, depended on luck what kind of tenants you meet.
It is not the like rent out, trouble free, every tenant pay on time one especially those low cost one.

Working profession want to rent your low cost properties?
Shouldn't go beyond 300k?
what kind properties you can get with below 300K nowadays.

You need to maintain the properties, you need to pay the maintenance fee, lot of stuff, it is almost impossible nowadays to get a residential property that can have a net yield 10%, based on current pricing of property.
Commercial yes, may be, but not residential.

Don't get me wrong, I don't mean reit is better than owning property yourself.
Both have its own advantage to the others.

Reit has one distinct advantage, you need money time, you straight away can get with 3 days, you don't need to do anything, sit back, wait pay check.
Owning property, has full control on the properties, but can be hassle.

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Added on October 9, 2011, 10:35 am

You cannot avoid tax.
Rental income is not tax exempted.

Low cost 160k apartment can rent 2K per month? wow, this must buy then.

I only know 700k condo that rental is about 3-4k with fully furnished.