Imagine owning a piece of a shopping mall, an apartment building, or even a skyscraper without having to buy the whole property yourself. That’s what REITs (Real Estate Investment Trusts) allow you to do. In this post we will share with you the types of REITs, who can buy them and the best REITs to buy from our research.
A REIT is a company that owns, operates, or finances income-generating real estate. By law, REITs must return at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive option for income-seeking investors.
Investing in REITs can be an easy way to add real estate to your portfolio without the headaches of being a landlord.
Types of REITs
There are three main types of REITs, each focusing on different aspects of real estate:
- Equity REITs
- These REITs own and manage income-generating properties like apartments, offices, malls, and warehouses.
- They make money primarily through rental income.
- Mortgage REITs (mREITs)
- Instead of owning properties, mortgage REITs invest in mortgages or mortgage-backed securities.
- Their income comes from interest on these loans, making them more sensitive to interest rates.
- Hybrid REITs
- These combine equity and mortgage REITs, giving exposure to both property ownership and mortgage investment.
Who Can Buy a REIT?
Good news: almost anyone can buy REITs!
REITs are traded on stock exchanges, just like regular stocks, which means:
- If you have a brokerage account, you can buy REITs.
- They’re suitable for beginners and experienced investors alike.
Additionally, some REITs are private or non-traded, meaning they’re not available on public exchanges. These are typically reserved for institutional investors or high-net-worth individuals.
What’s Happening With REITs in the Market? (from 2022)
The last couple of years have been a rollercoaster for REITs due to the following reasons:
- Impact of Rising Interest Rates
- REITs often borrow money to finance their properties, and higher interest rates increase borrowing costs.
- Rising rates also make bonds more appealing compared to dividend-paying investments like REITs.
- Post-Pandemic Recovery
- Sectors like retail and office REITs faced challenges during the pandemic, but residential and industrial REITs (e.g., warehouses for e-commerce) have shown resilience.
- Shift in Demand
- Data center and infrastructure REITs (e.g., cell tower REITs) are gaining popularity as the world becomes more digital.
Despite challenges, REITs remain a reliable choice for income-focused investors, especially through REIT ETFs.
Best REIT ETFs to Consider in 2024
Here are some of the best REIT ETFs for building wealth and earning passive income:
- Vanguard Real Estate ETF (VNQ)
- Tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index.
- Includes residential, industrial, office, and retail REITs.
- Low expense ratio and broad exposure to the US real estate market.
- Schwab US REIT ETF (SCHH)
- Provides exposure to US equity REITs while excluding mortgage REITs.
- Known for its low costs and solid performance over time.
- iShares US Real Estate ETF (IYR)
- Offers exposure to a diversified mix of REITs and real estate management companies.
- Covers both small and large-cap real estate businesses.
- Global X SuperDividend REIT ETF (SRET)
- Focuses on high-dividend REITs globally, making it an income-focused choice.
- Higher risk due to its emphasis on yield.
- Real Estate Select Sector SPDR Fund (XLRE)
- Tracks the real estate sector of the S&P 500 index.
- Includes some of the largest and most stable REITs.
Why Invest in REIT ETFs?
- Diversification
- Real estate often behaves differently from stocks and bonds, adding variety to your portfolio.
- Steady Income
- REITs are known for paying consistent dividends, making them a good choice for passive income.
- Low Entry Cost
- You don’t need to save millions to invest in property—REIT ETFs make real estate investing accessible.
Key Points Before You Invest
- Understand Your Goals: Are you looking for income, growth, or both?
- Check the Expense Ratio: Low-cost funds like VNQ are generally more appealing.
- Watch Interest Rates: REITs can be sensitive to rate changes.
Explore More
If you’re ready to dive into real estate investing or want to learn more about smart financial strategies, check out our Investment Page for detailed guides and tips. Don’t forget to visit our Homepage to explore a range of resources tailored to help you build wealth and secure your financial future.
