How To Invest In Real Estate Stocks? (TOP 5 Tips)

Should you buy real estate as an investment?

  • When purchasing real estate as an investment, you need to consider the cost of taxes, utilities, upkeep, and repairs. Often it is easier to go through a rental company and have them handle things like repairs and rent collection. While this will cost money, it will help ease the burden of owning a rental property.


Can you invest in real estate stocks?

The most obvious way to invest in real estate through stocks is by buying real estate investment trusts, or REITs. invest at least three-fourths of its assets in real estate, derive at least three-fourths of its income from its real estate assets, and. pay at least 90% of its taxable income to shareholders as dividends

Are REIT a good investment?

REITs are total return investments. They typically provide high dividends plus the potential for moderate, long-term capital appreciation. The relatively low correlation of listed REIT stock returns with the returns of other equities and fixed-income investments also makes REITs a good portfolio diversifier.

Do REITs pay dividends?

REIT shares trade on the open market, so they are easy to buy and sell. The common denominator among all REITs is that they pay dividends consisting of rental income and capital gains. To qualify as securities, REITs must payout at least 90% of their net earnings to shareholders as dividends.

What are real estate stocks called?

Real estate investment trusts (REITs) are publicly traded companies that allow individual investors to buy shares in real estate portfolios that receive income from a variety of properties.

Is REIT a good investment in 2021?

Real estate investment trusts, or REITs, are typically thought of as defensive stocks because they tend to be stable regardless of how the overall market performs. REITs have done well in 2021 as investors have picked them up amid inflation concerns, but Cramer thinks the assets have even more room to run.

How much do REITs pay out?

The average dividend yield for equity REITs is right around 4.3%. However, there are some high-dividend REITs out there that pay significantly more than average. The dividend yield on a REIT is based on its current stock price.

Why is Agnc dividend so high?

Bethesda, Maryland-based AGNC Investment is a real estate investment trust (REIT) primarily investing in residential mortgage-backed securities (BMS). As a REIT, AGNC is required to pay 90% of taxable income back to its shareholders, implying consistent dividend payouts.

How do you get money from a REIT?

Because the REITs aren’t publicly traded, the only way to withdraw money is to redeem shares.

What is the 2% rule in real estate?

The two percent rule in real estate refers to what percentage of your home’s total cost you should be asking for in rent. In other words, for a property worth $300,000, you should be asking for at least $6,000 per month to make it worth your while.

How long do I have to own stock to get the dividend?

In order to receive the preferred 15% tax rate on dividends, you must hold the stock for a minimum number of days. That minimum period is 61 days within the 121-day period surrounding the ex-dividend date. The 121-day period begins 60 days before the ex-dividend date.

Which REITs pay the highest dividend?

Table of Contents

  • High-Yield REIT No. 10: Omega Healthcare Investors (OHI)
  • High-Yield REIT No. 9: Apollo Commercial Real Estate Finance (ARI)
  • High-Yield REIT No. 8: PennyMac Mortgage Investment Trust (PMT)
  • High-Yield REIT No.
  • High-Yield REIT No.
  • High-Yield REIT No.
  • High-Yield REIT No.
  • High-Yield REIT No.

5 Types of REITs and How to Invest in Them

When putting together an equity or fixed-income portfolio, real estate investment trusts (REITs) are a critical component to take into account. They provide better diversity, the possibility for higher total returns, and/or a lower overall risk than traditional investments. Their capacity to produce dividend income while still increasing in value makes them an ideal counterpoint to equities, bonds, and cash in general. RREITs are companies that hold and/or manage income-producing commercial real estate, whether it’s the actual properties or the mortgages on those properties.

There are several different kinds of real estate investment trusts (REITs).

Hopefully, at the conclusion of this essay, you’ll have a better understanding of when and what to purchase.

Key Takeaways

  • Making real estate investments through REITs can help to diversify your portfolio, but not all REITs are made equal. Some real estate investment trusts (REITs) invest directly in properties, collecting rental revenue and management fees in the process. Others put their money into real estate debt, such as mortgages and mortgage-backed securities (MBSs). Furthermore, real estate investment trusts (REITs) tend to specialize in a certain type of property, such as retail or shopping malls, hotels and resorts, or healthcare and hospitals. The high-yield dividends paid by REITs are one of the most significant advantages they have to offer. 90% of taxable income must be distributed to shareholders by REITs. The majority of REIT dividends do not fulfill the IRS’s definition of “qualified dividends.”

5 Types of REITs And How To Invest In Them

Real estate investment trusts (REITs) have historically been one of the most profitable asset types to invest in. The FTSENAREIT Equity REIT Index is the index that most investors use to assess the performance of the real estate market in the United States of America. Between 2010 and 2020, the index had an annualized return of 9.5 percent on an average. The three-year average for REITs was 11.25 percent between November 2017 and November 2020, which was much higher than both the S P 500 and the Russell 2000, which were 9.07 percent and 6.45 percent, respectively, during the same period.

Both should be taken into consideration while constructing a well-rounded portfolio.

1. Retail REITs

Shopping malls and freestanding retail properties account for approximately 24% of total REIT assets. This constitutes the single largest investment of its kind in the history of the United States. Whatever retail mall you visit, it’s probable that it’s controlled by a real estate investment trust (REIT). In order to properly evaluate a retail real estate investment, it is necessary to first assess the retail business as a whole. Is the company financially sound at the moment, and what is the forecast for the foreseeable future?

  • In the case that shops are suffering cash flow difficulties as a result of weak sales, it is likely that they would postpone or even fail on their monthly payments, ultimately forcing them into bankruptcy.
  • As a result, it is critical that you engage in real estate investment trusts that have the best anchor tenants available.
  • Once you’ve completed your study of the industry, you should shift your attention to the REITs themselves.
  • In a downturn, retail real estate investment trusts (REITs) with sufficient cash on hand will be offered with possibilities to acquire attractive real estate at distressed rates.
  • Having said that, there are longer-term worries for the retail REIT industry due to the fact that purchasing is rapidly going online rather than through traditional malls.

Although space owners have continued to innovate in order to fill their space with offices and other non-retail oriented tenants, the subsector is facing increasing competition.

2. Residential REITs

Multi-family rental apartment complexes, as well as prefabricated housing, are owned and operated by real estate investment trusts (REITs). Before making a decision on whether or not to invest in this sort of REIT, it is important to evaluate a number of considerations. Consider that the greatest apartment markets are typically located in areas where house affordability is low in comparison to the rest of the country. In cities such as New York and Los Angeles, the high cost of single-family houses encourages more people to rent, driving increasing the rent that landlords may ask each month in order to make a profit.

Investors should check for population and job growth in the individual markets they are considering.

A decreasing vacancy rate in conjunction with rising rents is an indication that demand is improving in the market.

As is true of all businesses, those with the strongest balance sheets and the most readily available capital typically outperform their peers.

3. Healthcare REITs

Healthcare REITs will be an intriguing subsector to follow as the population of the United States continues to age and healthcare prices continue to rise. Healthcare real estate investment trusts (REITs) are companies that invest in the real estate of hospitals, medical centers, nursing homes, and retirement homes. The success of this real estate venture is inextricably linked to the performance of the healthcare system. In addition to occupancy fees, Medicare and Medicaid payments, and private pay, the vast majority of these institutions’ owners rely on these sources of revenue.

A varied collection of consumers, as well as investments in a variety of various property types, are all characteristics to look for in a healthcare real estate investment trust.

In general, a rise in the demand for healthcare services (which should occur as a result of an older population) is beneficial to the real estate sector in the healthcare industry.

4. Office REITs

Office REITs are companies that invest in office buildings.

They earn rental money from tenants who, in most cases, have signed long-term leases with the company. For anybody considering investing in an office REIT, there are four questions that spring to mind.

  1. Which sector of the economy is in the best shape, and how high is the unemployment rate? What are the current vacancy rates? The economic health of the region in which the REIT invests is also important. What kind of capital does it have available for purchases

Look for real estate investment trusts (REITs) that invest in economic hotbeds. In comparison to owning premium office property in Detroit, it is preferable to possess a collection of middling buildings in Washington, D.C.

5. Mortgage REITs

In contrast to the actual real estate, mortgages account for around 10% of REIT assets. Fannie Mae and Freddie Mac, two government-sponsored firms that acquire mortgages on the secondary market, are the most well-known, although they are not necessarily the best investments in the market. However, just because this sort of REIT invests in mortgages rather than in equity does not imply that it is without risk or danger. In the event that interest rates rise, mortgage REIT book values will decline, resulting in a decline in stock prices…

If interest rates continue to climb, future funding will become more expensive, eroding the value of a loan portfolio over time.

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Finding the correct one is the difficult part.

The Keys to Assessing Any REIT

When evaluating any REIT, there are a few considerations to bear in mind. This list includes the following items:

  1. Real estate investment trusts (REITs) are real total return investments. In addition to offering substantial dividend yields, they also provide reasonable long-term capital appreciation. Look for organizations who have done a good job in the past at offering both of these services. A large number of REITs are traded on stock markets, in contrast to traditional real estate. You benefit from the variety that real estate provides without being tied in for the long haul. It is important to have liquidity
  2. Depreciation has a tendency to exaggerate the fall in the value of an investment’s property. As a result, instead of evaluating a REIT based on its payout ratio (which is what dividend investors do), investors should consider its funds from operations (FFOs). This is defined as net income less the proceeds from the sale of any real estate in a particular year, as well as depreciation. Take the dividend per share and divide it by the FFO per share to get the FFO per share. The higher the yield, the better
  3. Nevertheless, the higher the yield It makes a difference when you have strong management. Look for organizations that have been in business for a long time or at the very least have a management team with a great deal of expertise. It is important to have high-quality products. Only invest in real estate investment trusts (REITs) with excellent assets and renters. Consider purchasing a mutual fund or exchange-traded fund (ETF) that invests in real estate investment trusts (REITs) and delegating the research and purchasing to professionals.

Specifically, a REIT must invest at least 75% of its assets in real estate and cash, and generate at least 75% of its gross revenue from sources like as rent and mortgage interest, according to the Securities and Exchange Commission.

Advantages and Disadvantages of REITs

Real estate investment trusts (REITs) offer advantages and downsides, just like any other type of investment. The high-yield dividends paid by REITs are one of the most significant advantages they have to offer. Because REITs are required to distribute 90% of their taxable income to shareholders, REIT dividends are frequently significantly greater than the average dividend paid by a company on the S P 500. Another advantage is the diversity of one’s investment portfolio. Few people have the financial means to acquire a piece of commercial real estate in order to create passive income; nevertheless, real estate investment trusts (REITs) provide the general public with the potential to do just that.

There are several disadvantages to REITs that investors should be aware of, the most significant of which being the possible tax burden that REITs might produce.

Although real estate investment trusts (REITs) qualify for the 20 percent pass-through deduction, most investors will be required to pay a significant amount of taxes on REIT income if they hold REITs in a traditional brokerage account.

In general, when the Federal Reserve raises interest rates in an attempt to rein in spending, real estate investment trust (REIT) values decline.

Furthermore, different types of REITs are exposed to risks that are particular to their properties. During periods of economic downturn, hotel REITs, for example, frequently perform exceptionally poorly. Pros

  • Dividends with a high rate of return
  • Portfolio diversity
  • And high liquidity.
  • Dividends are subject to regular income taxation. Tolerance to changes in interest rates
  • Risks connected with particular characteristics


The investment in real estate investment trusts (REITs) is an excellent strategy to diversify your portfolio outside of standard equities and bonds. REITs are also attractive because of their high dividend yields and potential for long-term capital gain.

What REITs Should I Invest In?

Depending on the status of the economy, each form of REIT has its own set of risks and opportunities. For shareholders who do not want to deal with the complexity of the real estate industry, investing in REITs through aREIT ETFi is a fantastic method of becoming involved with the sector.

How Do You Make Money on a REIT?

Depending on the status of the economy, each form of REIT carries its own set of risks and opportunities. For shareholders who do not want to deal with the complexity of the real estate industry, investing in REITs through aREIT ETFi is a fantastic method of becoming involved in the sector..

Can You Lose Money on a REIT?

There is always the possibility of losing money while making an investment. When interest rates rise, the value of publicly listed real estate investment trusts (REITs) is particularly vulnerable to decline, as investment money is often diverted into bonds.

Are REITs Safe During a Recession?

Investing in some types of real estate investment trusts (REITs), such as those that invest in hotel assets, is not a wise decision during a recession. In contrast, investing in other forms of real estate, such as health care or retail, which tend to have longer lease agreements and are therefore less cyclical, is an excellent method to protect one’s wealth during a recession.

The Bottom Line

As early as 1960, the federal government made it feasible for investors to participate in large-scale commercial real estate developments through the use of tax breaks. Individual investors, on the other hand, have only recently embraced real estate investment trusts (REITs). Low interest rates, which forced investors to look beyond bonds for income-producing investments, the introduction of exchange-traded and mutual funds specializing in real estate, and, until the real estate bubble burst in 2007-2008, an insatiable appetite on the part of Americans for real estate and other tangible assets are among the reasons for this.

Despite this, they continue to be a valuable asset to any well-diversified portfolio of investments.

These Real Estate Stocks Should Outperform During a Challenging Market in 2022

In a stagflationary scenario, real estate equities may outperform their peers. Investors are fearful that stagflation, as seen in the 1970s, could return in 2022 as a result of persistently high prices and decreasing economic development. When stagflation was a concern in the economy, real estate was one of the best-performing sectors in the market. Investing in real estate should be concentrated on high-quality real estate investment trusts, or REITs, that have pricing power, robust and flexible balance sheets, and inflation-protected cash flow, suggests Bank of America.

  1. Here are the eight greatest real estate equities to purchase in 2022, according to Bank of America analyst Jeffrey Spector.
  2. is a real estate investment company based in Alexandria, Virginia (ticker:ARE) Alexandria Real Estate Equities is a real estate investment trust that owns facilities that feature office and laboratory space for the life science sector.
  3. His company’s holdings, he claims, are located in major scientific research and development marketplaces, such as the cities of Boston and San Francisco, as well as Washington, DC, and the Research Triangle in North Carolina.
  4. Alexandria also pays a dividend of 2.1 percent on its earnings.
  5. The following:Real estate stocks may prosper in a stagflationary scenario.
  6. When stagflation was a concern in the economy, real estate was one of the best-performing sectors in the market.
  7. Quality REITs also often have strong, long-term profit visibility that is driven by secular growth patterns, and they frequently outperform their peers in terms of earnings and revenue and raise forecasts.

Alexandria Real Estate Equities Inc.

Alexandria is the top office REIT option for Spector’s forecast for 2022.

Increasing research and development funding, along with strong demand for life sciences real estate, according to Spector, positions Alexandra in a favorable position in a time of rising interest rates, inflation, and general economic instability.

The stock of ARE, which ended at $217.49 on December 21, has a “buy” recommendation from Bank of America and a $250 price objective from the brokerage.

(EXR) is the second-largest self-storage REIT in the United States, and it is Spector’s top recommendation in the self-storage category.

Spector claims that the firm has one of the greatest operational platforms among its peers and that it should be able to produce sector-leading growth in the coming months.

Extra Space pays a dividend of 2.3 percent on its earnings.

Invitation Houses Inc.

It is Spector’s top single-family residential REIT selection.

He claims that the REIT possesses a high-quality portfolio, margin upside, a solid management team, and external development potential, among other attributes.

wages and stable house pricing trends by 2022.

The stock of INVH, which ended at $43.34 on December 21, gets a “buy” rating from Bank of America and a $51 price target from the brokerage.

(REG) is a retail center owner and operator that owns and runs shopping centers.

In addition to being grocery-anchored commercial malls, Regency’s properties, according to Spector, also benefit from favorable tenancy and demographic trends.

Retailers updating their store footprints and moving into top-tier shopping complexes, according to Spector, should continue to benefit Regency.

Bank of America has a “buy” rating and a $83 price target for REG stock, which closed at $72.93 on Dec.

Rexford Industrial Realty Inc.

Rexford is Spector’s top industrial REIT pick.

He is predicting earnings beats for the company through at least 2023.

Rexford also pays a 1.2 percent dividend.


(SUI)Sun Communities owns and operates manufactured housing communities primarily in the U.S.

Sun is Spector’s top manufactured housing REIT pick.

Spector says Sun’s manufactured homes, recreational vehicles and marinas segments are firing on all cylinders.

Sun also pays a 1.6 percent dividend.


(UDR)UDR owns more than 56,000 U.S.

Spector says UDR has a geographicallydiversified asset portfolio, an impressive operational platform and a respected management team.

Spector says the next phase of UDR’s operating initiatives could generate more than $100 million in incremental net operating income.

Bank of America has a “buy” rating and a $68 price target for UDR stock, which closed at $58.22 on Dec.

Welltower Inc.

Spector named Welltower his top health care REIT pick.

Spector projects senior housing rate growth will accelerate “sharply” in 2022 and says Welltower has the best positioned senior housing portfolio among REITs he covers.

Welltower has a 2.9 percent dividend. Bank of America has a “buy” rating and a $95 price target for WELL stock, which closed at $82.64 on Dec. 21. Best real estate stocks to buy:

  • Sun Communities Inc. (SUI)
  • UDR Inc. (UDR)
  • Welltower Inc. (WELL)
  • Alexandria Real Estate Equities Inc. (ARE)
  • Extra Space Storage Inc. (EXR)
  • Invitation Homes Inc. (INVH)
  • Regency Centers Corporation (REG)
  • Rexford Industrial Realty Inc. (REXR)

How to Invest in Real Estate

Updated at 6:54 p.m. on December 17, 2021. A large number of investors have a real estate stake in their investment portfolio. Adding additional real estate assets, on the other hand, can help you diversify your portfolio and shield you from the volatility of the stock market. Let’s take a look at your real estate investment alternatives, the advantages and disadvantages of each, and how you might get started.

What are my investment options?

The following are the most often used real estate investing strategies:

  • Rental properties, REITs, real estate investment trusts, real estate investment groups, flipping homes, real estate limited partnerships, and real estate mutual funds are all examples of real estate.

Let’s take a closer look at how they function.

Rental properties

Rental homes are the most hands-on choice on this list, and they also the most expensive. You purchase a piece of residential real estate with the intention of renting it out to renters. The majority of rental houses are rented for a duration of 12 months, although short-term rentals through firms such as Airbnb(NASDAQ:ABNB) are growing increasingly popular. As the owner of the property, you are also the landlord. You are responsible for the care of the property, cleaning between renters, major repairs, and payment of real estate taxes.

The rental income you receive from renters, as well as price appreciation if you sell the property for more than you bought for it, are the two ways in which you might profit from investing in rental property.

Depending on your modified adjusted gross income, you may be able to deduct up to $25,000 in losses from your rental properties from your regular income if your modified adjusted gross income is less than $100,000.

When purchasing rental property, you may be required to make a down payment of up to 25% of the purchase price.


Real estate investment trusts (REITs) are a simple method to get started in real estate investing if you don’t want to deal with the headaches of maintaining a rental property or if you don’t have the cash to put down the required 25 percent down payment. REITs (Real Estate Investment Trusts) are publicly listed trusts that own and manage rental properties. In addition to medical office space, shopping malls, industrial real estate, and office or residential buildings are also possible investments for them.

If the REIT fits this criterion, it will not be required to pay corporation income taxes. Additionally, although selling a rental property might take months and reams of paperwork, a REIT has the advantage of liquidity due to the fact that they are listed on stock markets.

Real estate investment groups

One strategy to maintain the profit potential of private rental properties while potentially gaining greater upside than a real estate investment trust (REIT) selling at a premium is to invest in a real estate investment group (REIG). REIGs are companies that buy and maintain properties before selling off portions of the property to investors. A REIG will purchase an asset such as an apartment complex, and investors will be able to purchase units within it. The operating business keeps a percentage of the rent and is in charge of the property’s management.

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Many times, when a number of units are empty, the investors will pool part of the rent in order to keep debt payments current and to fulfill other commitments.

Flipping houses

Flipping properties is the most complex and hazardous of these possibilities, but it also has the potential to be the most lucrative. The two most prevalent methods of flipping properties are to purchase, fix, and resell, and to purchase, wait, and resell. In any scenario, the idea is to make your initial investment as low as possible by making a small down payment and keeping remodeling expenditures as low as possible. Consider the following scenario: you are able to purchase a property for $250,000 with a 20 percent down payment, or $50,000.

  • When you pay off the $200,000 loan, you will have a profit of $100,000 on a $100,000 investment, which is equal to $400,000 in total.
  • The difficulty is that this isn’t always possible.
  • This is especially true when the market is through a correction.
  • As of 2021, building materials are skyrocketing in price, there is a severe lack of workers everywhere, and there are virtually no affordable homes for sale.
  • Everyone and everything is extremely pricey, and the market might shift at any time.
  • Even while it may seem counterintuitive at the time, it will save you money in the long term.

Real estate limited partnerships

RELPs are a type of REIG that invests in real estate limited partnerships. In a similar way to hedge funds, RELPs have limited partners (investors) and an operating partner (the general partner) (the manager). The general partner is often a real estate company that assumes full responsibility for the partnership. RELPs are a type of real estate investment that is more passive. In most cases, the general partner establishes the partnership and seeks investors to become limited partners once the partnership is formed.

If you can locate a suitable general partner, RELPs may be quite profitable. However, you are completely reliant on that general partner, who is expected to run the property and provide you with reliable financial reports without any monitoring.

Real estate mutual funds

Real estate funds make investments in real estate investment trusts and real estate operating corporations (REOCs). REOCs are similar to REITs in that they do not have to pay dividends, allowing them to develop considerably more quickly. Real estate mutual funds and exchange-traded funds (ETFs) are the most straightforward ways to make a real estate investment. You delegate the selection of the greatest real estate investment to a manager or even an index, and you earn dividends in exchange. You should consider investing in real estate funds even if you are primarily a stock market investor in order to diversify your portfolio while maintaining the liquidity profile you are accustomed to.

Why should you invest in real estate?

Here are some of the advantages and disadvantages of investing in real estate:

Pros Cons
If you invest in physical property, you can control your investment. You could also have a totally passive investment that you don’t need to manage. In a Great Recession type of event, prices can collapse and take down your entire portfolio.
Can be a source of steady monthly income payments. With the amount of leverage required, even small price drops can wipe out your whole investment.
Can reduce your overall volatility through diversification and lower price movements in general. If you choose to flip houses or personally own rental properties, it can turn into a career in itself and use up significant free time.
Can lead to long-term wealth through the use of leverage. Up-front costs can make initial investments difficult. You need to save enough for the down payment and to cover cash flow shortages when there are vacancies.

How to get started in real estate

If you decide to make a real estate investment, start by following these five steps to get started:

  1. Save money: When compared to other asset sectors, real estate has some of the most costly barriers to entry of any. Prior to getting started, you’ll want to pay off your high-interest debt and have a substantial amount of cash on hand. Select a strategy from the following options: Each of the tactics outlined above has the potential to be effective. If you decide to invest in real estate investment trusts (REITs) or mutual funds, a website such as Millionacrest can assist you in getting started. Choosing a market is essential if you want to purchase real property. Assemble a group of people: When you first start out, you may want to consider working with an agent. Off-book chances that haven’t been mentioned yet will be sent to you by excellent agents. Eventually, you may want the services of a property manager as well as an accountant to handle your financial records. If you are successful, you may require the assistance of investors at some point. Carry out a transaction analysis: Regardless of whether you’re investing in residential or commercial real estate, you should conduct extensive research before making any decisions. For example, when investing in rental properties, you’ll need to determine what future rent payments would be, what costs you might be accountable for, and how much the property might be worth when it’s time to sell. Close the deal: The final step is to pull the trigger on the transaction. You may either close on your home or make the purchase in your brokerage account.

Related investing topics

Investing in Stocks in the Construction Industry The construction business includes investment opportunities in infrastructure, manufacturing, and residential and commercial structures. Investing in the Stocks of Residential Real Estate Housing stocks provide you with exposure to the business without requiring you to purchase a house of your own. Investing in Lumber Corporation Stocks A commodity stock in the construction business is lumber, which is a sort of commodity stock. Investing in Stocks of Electric Utility Companies Electrification utility stocks are publicly listed enterprises that are regulated by various government entities.

The bottom line

At first glance, real estate investment might appear to be a daunting task. Not everyone has the time or skill to flip properties or deal with the responsibilities of being a landlord. The good news is that there are alternatives accessible for every level of investor, each of which caters to a different set of goals, skill levels, and time limitations than the other possibilities. The most essential thing to do is to get started as soon as possible and allow your investment to begin compounding immediately.

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Best-Performing REITS: How to Invest in Real Estate Investment Trusts

REIT — which rhymes with “sweet” — is an abbreviation for real estate investment trust, and it is becoming increasingly popular among investors looking to diversify their portfolios beyond publicly listed corporate stocks and mutual funds, according to the Wall Street Journal. REITs are corporations that own (and in some cases run) income-producing real estate, such as apartments, warehouses, self-storage facilities, shopping malls, and hotels, among other types of properties. Their allure is straightforward: the most dependable REITs have a track record of paying out significant and rising dividends to their shareholders.

How do REITs work?

A real estate investment trust was established by Congress in 1960 to allow individual investors to possess equity shares in large-scale real estate corporations in the same manner that other businesses may be owned by the same individuals. In response to this decision, it became more easier for investors to acquire and exchange a diverse real-estate portfolio. REITs are obliged to adhere to a set of guidelines established by the Internal Revenue Service, which include the following requirements:

  • Each year, return a minimum of 90 percent of taxable revenue to shareholders in the form of shareholder dividends. This is a significant factor in attracting investor interest in REITs. At least 75% of total assets should be invested in real estate or cash. Receive at least 75% of gross revenue from real estate, such as real estate rentals, interest on mortgages financing the real estate, or proceeds from the sale of real estate
  • After the first year of operation, the company must have a minimum of 100 shareholders. If you own no more than 50 percent of your stock in five or fewer persons during the final half of the taxable year, you are exempt from this requirement.

Because they follow these criteria, real estate investment trusts (REITs) do not have to pay corporate income tax, which allows them to finance real estate at a lower cost than non-REIT corporations. As a result, REITs have the potential to expand in size and pay out increasingly higher dividends over time.

Types of REITs

The real estate investment trusts (REITs) may be split into three basic types based on their investment holdings: equity, mortgage, and hybrid REITs. Real estate investment trusts (REITs) can be further subdivided into three sorts based on how the investment can be acquired: publicly listed REITs, publicly non-traded REITs, and privately held REITs. Before investing in a REIT, it’s crucial to understand the features and dangers associated with each type of REIT you are considering.

REIT types by investment holdings

Equity real estate investment trusts (REITs): Equity REITs function in the same way that a landlord does. They are the owners of the underlying real estate, are responsible for the care and reinvestment of the property, and are in charge of collecting rent payments – in short, all of the management chores associated with owning a property. Mortgage REITs (also known as mREITs) are a type of real estate investment trust that, unlike equity REITs, does not own the underlying property. Instead, they own debt securities that are secured by the real estate they own.

Someone else, in this case the family, is in charge of the property and is responsible for its upkeep and maintenance.

Real estate investment trusts (REITs) are a mix of equity and mortgage REITs, as well as other types of REITs.

Aside from owning and operating real estate holdings, these companies also have commercial property mortgages in their portfolio. Make sure you read the REIT prospectus in order to grasp the company’s principal objectives.

REIT types by trading status

Equity real estate investment trusts (REITs): Equity REITs function in the same way that a landlord would do. Property management companies are in charge of all of the chores associated with owning real estate, including care, reinvestment, and collecting rent checks – in short, everything you would expect from a landlord. Mortgage REITs (also known as mREITs) are a type of real estate investment trust that, unlike equity REITs, does not own the real estate on which they are based. Instead, they own debt securities that are secured by the real estate they have purchased.

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Aside from that, the property is owned and operated by someone else, such as a family in this case.

Real estate investment trusts (REITs) are a mix of equity and mortgage REITs, referred to as hybrid REITs.

Always read the REIT prospectus to have a better understanding of the company’s principal objectives.

Best-performing REIT stocks: December 2021

Here are some of the best-performing publicly traded real estate investment trusts (REITs) so far this year:

Symbol Company REIT performance (1-year total return) Share price
DBRG Digital Bridge 258% $6.98
SKT Tanger Factory Outlet Centers, Inc. 170.7% $17.09
CPLG CorePoint Lodging 151.9% $13.78
RHP Ryman Hospitality Properties, Inc. 137.2% $78.08
SPG Simon Property Group 126.7% $134.03

Rather than purchasing individual REITs, you may instead invest in REIT mutual funds and exchange-traded funds (ETFs) to provide immediate diversification at a low cost. The following are some of the best-performing property-focused mutual funds and exchange-traded funds (ETFs) during the previous year:

Best-performing REIT mutual funds: December 2021

Symbol Fund name Year-to-date return % Gross expense ratio
IVRIX VY Clarion Real Estate I 45.48% 0.68%
IVRSX VY Clarion Real Estate S 45.13% 0.93%
IVRTX VY Clarion Real Estate S2 44.94% 1.08%
DLREX DoubleLine Colony Rl Estt Inc N 42.31% 0.89%
PJEQX PGIM US Real Estate R6 41.84% 1%

Best-performing U.S. REIT ETFs: December 2021

Symbol ETF name Year-to-date return % Expense ratio
NURE Nuveen Short-Term REIT ETF 40.97% 0.35%
RWR SPDR Dow Jones REIT ETF 34.68% 0.25%
USRT iShares Core U.S. REIT ETF 32.58% 0.08%
BBRE JPMorgan BetaBuilders MSCI U.S. REIT ETF 32.36% 0.11%
ICF iShares CohenSteers REIT ETF 32.08% 0.33%

All information is accurate as of December 8, 2021. Nariet, Morningstar, and were used as sources.

REITs’ average return

The FTSE NAREIT All Equity REITs index — which gathers data on all publicly listed equity REITs – beat the Russell 1000, a stock market index of large-cap equities, over the 20-year period ending in December 2019, according to Nareit. The total returns on the REIT indexed investments averaged 11.6 percent per year, compared to the Russell 1000’s 6.29 percent per year.

REITs: The pros and cons

There are several advantages to investing in real estate investment trusts, particularly ones that are publicly traded:

  • Consistent payouts: Because REITs are obligated to distribute 90 percent of their yearly profits to shareholders as dividends, they have continuously provided among of the best dividend yields in the stock market, according to the Financial Times. They are therefore popular among investors who are looking for a consistent stream of revenue. The most dependable real estate investment trusts have a track record of delivering significant and increasing dividends for decades. High returns: As previously mentioned, returns from real estate investment trusts (REITs) can beat returns from stock indexes, which is another reason why they are an excellent alternative for portfolio diversification. Liquidity: Buying and selling publicly listed REITs is significantly less difficult than the time-consuming process of actually purchasing, managing, and selling commercial buildings
  • And Lower volatility: Because of their higher payouts, real estate investment trusts (REITs) tend to be less volatile than typical equities. Although real estate investment trusts (REITs) can operate as a buffer against the stomach-churning ups and downs of other asset classes, no investment is completely immune to volatility.


  • Liquidity (particularly for non-traded and private REITs): While publicly traded REITs are simpler to purchase and sell than physical properties, non-traded REITs and private REITs, as previously mentioned, might be more difficult to acquire and sell. These REITs must be held for a long period of time in order to realize potential benefits. Heavy debt: Another effect of REITs’ legal position is that they have a significant amount of debt on their balance sheet. They are frequently found to be among the most indebted businesses in the market. However, investors have grown accustomed to this situation because REITs typically have long-term contracts that generate regular cash flow — such as leases — that ensure that money will continue to flow in, allowing them to comfortably support their debt payments and ensure that dividends will continue to be paid out. Growth and capital appreciation are at a standstill: Because REITs distribute a large portion of their income as dividends, in order to expand, they must obtain capital by issuing additional stock and bonds. In other instances, however, such as during a financial crisis or economic collapse, investors are unwilling to purchase them. REITs may not be able to purchase real estate at the exact time they desire — but when investors are once again prepared to purchase REIT stock and bonds, the REIT will be able to grow. Tax burden: While REITs are exempt from paying taxes, their shareholders are still required to pay taxes on any dividends they receive, unless the dividends are collected in a tax-advantaged account. For this reason, REITs might be a good choice for Individual Retirement Accounts. Non-traded real estate investment trusts (REITs) can be expensive: It is possible that the cost of making an initial investment in a non-traded REIT will be $25,000 or more, and that participation will be limited to authorized investors. Non-traded real estate investment trusts (REITs) may also charge larger fees than publicly quoted REITs.

Investing in REITs: Get started

Opening a brokerage account, which normally takes only a few minutes, is the most straightforward way to get started. When this happens, you’ll be able to purchase and sell REITs in the same way you would any other type of stock. Because REITs produce such big dividends, it may be wise to hold them in a tax-advantaged account like as an IRA to allow you to postpone paying taxes on the income. It might make a lot of sense to just purchase an ETF or mutual fund that vets and invests in a diverse selection of REITs if you don’t want to trade individual real estate investment trust securities.

These funds are available through a variety of brokerages, and investing in them needs less research time than studying individual REITs for investment.

Jim Royal, a former NerdWallet journalist, was a contributor to this post. Disclosure: At the time of publishing, the author did not own any positions in any of the securities discussed in this article.

How to Invest in Real Estate Through Stocks

Real estate has traditionally been the preferred investment for people seeking to accumulate long-term wealth for their families and future generations. By subscribing to our complete real estate investment guide, you will receive assistance in navigating this asset class. When it comes to investing in real estate through equities, real estate investment trusts (REITs) are the most well-known and apparent choice. There are hundreds of real estate investment trusts (REITs), and many of them make good long-term investments.

Some non-REIT corporations possess a large number of real estate assets and engage in a variety of real estate-related operations.

Examine some of the most effective methods of investing in real estate through the stock market.

Real estate investment trusts

Purchases of real estate investment trusts, or REITs, are the most obvious way to gain exposure to the real estate market through stock investments. A real estate investment trust (REIT) is a corporation whose principal business operations are the ownership of real estate assets. In addition to managing the buildings they hold and leasing them to other parties, REITs can create money through developing new properties as well as purchasing and selling assets. A corporation must meet the following requirements in order to be legally designated as a REIT:

  • Investors should expect the company to invest at least three-fourths of its assets in real estate, receive at least three-fourths of its income from its real estate assets, and distribute at least 90 percent of its taxable income to shareholders as dividends.

A REIT that satisfies these and a few other standards is exempt from federal corporate income taxes. Instead, REITs are considered as pass-through businesses, similar to limited liability companies (LLCs) and S-Corporations. Income is not subject to taxation until it is distributed to shareholders. This is a significant tax break. When it comes to dividend-paying companies, earnings are essentially taxed twice: first at the corporate level, and then again at the individual level when they are distributed to shareholders in the form of dividends.

  • You may have heard of some of the largest real estate investment trusts (REITs) on the market: In addition to developing, owning, and managing shopping mall assets, Simon Property Group (NYSE: SPG) also operates “The Mills” and “Premium Outlets” retail malls.
  • Some of your packages have most likely traveled through Prologis facilities if you do your shopping online.
  • For starters, they allow you to invest in properties that would normally be beyond of reach for most investors.
  • Additionally, real estate investment trusts (REITs) benefit from a pass-through tax advantage and tend to provide dividend yields that are above the industry average.

Additionally, they can help you diversify your investments. The type of commercial property can influence whether real estate is considered a protective asset class. Generally speaking, real estate investment trusts (REITs) fare well during recessions and other difficult economic times.

Land developers and other property-owning businesses

While real estate investment trusts (REITs) enjoy favorable tax treatment, the standards are stringent. In some circumstances, this may not be a desirable outcome. For example, because real estate investment trusts (REITs) are required to pay out the majority of their taxable profits, they have limited opportunity to reinvest in the business and develop without incurring debt or selling additional shares. If a corporation’s business plan includes the ownership of real estate, but it does not intend to invest more than 75% of its assets in real estate, the REIT categorization may not be appropriate for the company in question.

  • The organization specializes in the development of master-planned communities, sometimes known as MPCs.
  • Commercial assets in the surrounding region, which Howard Hughes develops and rents to tenants, are in high demand as a result of the growth of these areas.
  • Because of its growth-oriented business philosophy, Howard Hughes would want to be classed as a typical corporation in order to spend as much of its profits as possible back into the company.
  • The corporation owns and runs mountain resorts in some of the most beautiful locations in the world, including the United States, Canada, and Australia, among other places.
  • The company’s mountain resorts are owned and operated by the “mountain” section
  • The company’s hotels, condominiums, and other assets are owned or managed by the “lodging” sector
  • And the company’s real estate development is handled by the third segment.

Despite the fact that the firm plainly operates in the real estate industry, it is not designated as a REIT for tax reasons.

Real-estate-adjacent companies

Many businesses stand to gain from a healthy real estate market, but they are not in the business of holding real estate assets. Home Depot(NYSE: HD) and Lowes(NYSE: LOW) are two examples of firms that can benefit from an increase in new construction or when a healthy economy allows more people to spend their money on renovations and home improvement projects. Strong real estate markets also assist real estate websites such as Zillow (NYSE: Z) and Zillow Group (NYSE: ZG). Also benefiting are companies that sell properties on behalf of their clients, such as Realogy (NYSE: RLGY).

Homebuilder companies, such as DR Horton (NYSE: DHI), are included in this group as well.

Property-casualty insurers, particularly those who write a large number of homeowner’s insurance policies, can reap the benefits of a healthy real estate market as well.

The list is extensive, and it is not possible to mention all of the businesses and industries that are associated with real estate in this space.

The risk levels of these equities are quite diverse, making it hard to make broad judgments about how volatile or hazardous they are when compared to REITs or other real estate firms.

The key takeaways

Briefly stated, there are three primary ways to invest in real estate through stock market investments:

  • Purchase real estate investment trusts, or REITs, which are a form of corporation that owns, manages, builds, buys, and/or sells commercial real estate
  • You may also purchase individual properties in real estate investment trusts. Another option is to make an investment in firms that hold real estate and carry out many of the same functions as real estate investment trusts (REITs), but do not wish to be classed as REITs for a variety of reasons. You might also invest in firms that stand to gain from the current strength in the real estate market, but whose core activity is not the ownership or management of real estate.

As we’ve seen, each sort of investment has its own set of advantages and disadvantages to consider. The most appropriate strategy for you to invest in real estate through stocks will be determined by your investing objectives and risk appetite.

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