How to invest in REITs in 2024. The ultimate guide


Real estate investing is one of the oldest forms of investing. However, because of the high costs and potential risks, it may not be the best option for your portfolio right now.

REITs, or real estate investment trusts, can provide most of the benefits of investing in real estate without the above cons.

Real estate investment trusts have been increasing in popularity as more and more people want to invest in the real estate market without having to become full-time landlords. But what are REITs? How to invest in REITs? How do they work? How can I get started investing in them?

In this article, we will answer all of your questions about REITs and examine the following topics:

  • What is a REIT
  • How do REITs work
  • Types of REITs
  • Best Stocks,ETFs or mutual funds
  • How to invest in REITs
  • Should i invest in REITs

What Is a REIT?

How to invest in REITs. blackboard in the shape of a house with REIT written on it

A real estate investment trust, or REIT, is a firm that owns and manages the income-producing property. REITs are required to distribute at least 90% of their taxable income to shareholders, which makes them attractive to income-focused investors.

There are two principal types of REITs: Equity REITs and mortgage REITs. Equity REITs own and operate income-producing properties, while mortgage REITs lend money to property owners or purchase existing mortgages.

Also, REITs can be public or private. Public REITs are traded on stock exchanges, while private REITS are not.

Below we will examine the different types of REITs and how they work in order to determine the best way to invest in them.

How do REITs work?

As an individual investor, you can invest in real estate investment trusts, which were created by Congress in 1960 as a method for individuals to gain equity stakes in major real-estate companies, just like they may do with other businesses.

This simplified the process of investing and trading a diversified real-estate portfolio for investors.

The IRS has specific criteria for REITs, including that they:

  • At least 100 shareholders must be present in the first year of operation.
  • At least 75% of your assets should be invested in real estate or cash.
  • At least 75% of gross income from real estate, such as real property rents, interest on mortgages used to finance the real property, or sales of real estate, must be received.
  • Every year, return at least 90% of taxable income in the form of shareholder dividends. This is a significant incentive for investors to look into REITs.
  • During the last half of a taxable year, hold no more than 50% of the shares in hands of five or fewer persons.

REITs are able to benefit from these regulations because they do not have to pay corporate income tax, allowing them to finance real estate more cheaply than non-REIT businesses. This means that over time, REITs can expand and pay out ever-higher dividends.

Types of REITs

Equity, mortgage, and hybrid REITs are the three types of real estate investment trusts. Each category can be split into three subcategories that reflect how investments may be acquired: publicly-traded REITs, public non-traded REITs, and private REITs.

REIT types by investment holdings

  • Public REITs are equities that are traded on a stock market and are highly liquid. You can buy and sell them fairly easy since they are listed on the stock market. Also they provide excellent transparency because they must register with the Securities and Exchange Commission (SEC). There are more than 220 publicly traded real estate investment trusts and the majority of them are listed on the New York Stock Exchange.
  • Public non-traded REITs are less liquid assets due to the fact that they are not listed on large stock exchanges, and their regulations may dictate that you must retain shares for a specific length of time before selling. Managers might buy back your holdings from time to time, or you could be able to sell them on a secondary market. Despite the fact that they are less liquid, they provide excellent transparency because they must also register with the SEC and submit quarterly and annual financial reports.
  • Private REITs are less liquid and do not have to submit financial statements to the SEC. As a result, you may have trouble accessing your money in the short term, and you might not be fully aware of what the fund invests in. Private REITs generally charge higher fees and are not required to publish many details publicly. Most individuals who are not professional investors are unable to participate in private REITs, which are only available to investment firms and accredited investors.

REIT types by asset type

  • Equity REITs invest in real estate and collect rent, as well as managing the upkeep and other responsibilities that come with property ownership. Equity REITs may choose to specialize in retail, healthcare, business, or residential property. You are buying a piece of the REIT’s real estate holdings when you purchase shares of an equity REIT.
  • Mortgage REITs (also known as mREITs) are a type of real estate investment trust that do not own the underlying property. Rather, they hold debt securities backed by the property. Mortgage REITs are typically much riskier than equity REITs and they generally pay out greater dividends.
  • Hybrid real estate investment trusts (REITs) own a mix of mortgage assets and real property. A hybrid REIT can give your portfolio even broader diversification.

When you are investing in REITs, make sure you know what kinds of assets they hold and whether their methods are compatible with your investment plan, and the degree of risk you are comfortable taking.


How to invest in REITs

There are several options if you want to invest in real estate investment trusts. You can do so through your brokerage account by purchasing shares of public REITs.

Also, you might build a diversified portfolio by investing in a diverse range of REITs or buy a mutual fund or an exchange-traded fund (ETF) focused on REITs.

Finally, you may invest in public non-traded REITs by using a financial advisor or a real estate crowdfunding platform.

Invest in Public REITs

How to invest in REITs. Coins and houses, investing in real estate

It is simple to invest in listed public REITs, or mutual funds and ETFs that own them, using an internet brokerage account. Shares of REIT mutual funds may also be available for purchase through your employer-sponsored retirement plan.

Your brokerage may provide screener tools to assist you in evaluating the historical performance, returns, and dividends generated by REITs. It’s also vital to investigate a company’s management team.

A REIT is made up of a managed pool of assets; assessing the track record of its management team is important in determining whether it is a good investment.

Publicly traded REITs can be bought and sold at any time on an exchange, making it simple to access the cash value of your position at almost any moment.

Invest in Public Non-Traded REITs

Purchasing shares of unlisted public REITs are more demanding.

Finding public non-traded REITs on your online brokerage’s trading platform may be more challenging, Most likely, you will need to acquire them from the REIT’s corporate or a third-party broker company.

Finally, you can have access to crowdfunding real estate investing platforms such as Fundrise or Diversyfund, which is one more way to invest in public non-traded REITs.

Invest in Private REITs

Investing in private REITs may be a high-risk, costly attempt. Minimum purchases of $25,000 or more are typical, which is why they are generally only available to qualified investors.

They are extremely illiquid, so you might only be able to sell a part of your holdings at a certain moment. In addition to paying high yearly management fees and various sales charges, they may charge excessive annual management fees in addition to different sales costs.

Private REITs, unlike public ones, are not required to register with the SEC. As a result, there is often little or no information on their performance or holdings available for monitoring. This makes private REITs especially hazardous for investors who have limited financial resources or tolerance for risk.

Best ETFs, Stocks, mutual funds

NAREIT provides a list of REITs on its website in order to find the best REIT to invest in. You may sort and monitor the firms by type, including both private and non-traded companies, as well as publicly-traded ones.

You can also discover details on REITs that are registered with the SEC, such as non-traded REITs and publicly traded REITs. Each of these REITs is obligated to submit financial reports so that investors and possible investors can get a glimpse into how it’s doing.

Below you will find some of the best publicly listed REITs, mutual funds, or ETFs ( exchange-traded funds) that are focused on properties investment:

Invesco KBW Premium Yield Equity REIT ETF (KBWY): The Fund may invest more than 90% of its total assets in the securities of small- and mid-cap equity REITs that have competitive dividend yields and are publicly listed on the US exchange market.

Fidelity Advisor Real Estate Fund – Class I (FHEIX): Investing at least 80% of assets in equities of firms primarily engaged in the real estate business and other real estate-related investments

DWS RREEF Real Estate Securities R6 (RRRZX): Investing at least 80% of assets in equity securities primarily engaged in the real estate investment trusts (REITs) and other real estate-related investments

DigitalBridge Group INC. (DBRG): Thomas Joseph Barrack, Jr., the company’s founder, created it in 1991 and its offices are located in Boca Raton, Florida. It is a real estate investment trust that acquires and manages properties.

Vanguard Real Estate ETF (VNQ): The Vanguard REIT ETF is one of the simplest methods for individuals to invest in real estate through a brokerage account or retirement plan. The portfolio covers a wide range of properties, including residential real estate, nursing homes, shopping malls or industrial parks.

Alternative Allocations Across Regions

Based on 138 asset owners in the Survey Universe database. Calculated on % of real estate assets in each category. Sources: IPD, MSCI

Should I invest in REIT?

Like with any financial step you choose to take, you should always think about your financial objectives and how your next move will help you achieve them.

Investing in REITs is an interesting way to diversify your portfolio outside of traditional equities and bonds.

Non-traded REITs can potentially provide you with higher yields, while publicly-traded REITs give you more liquidity.

You might examine the advantages and disadvantages of each of the various kinds of REIT investments we have covered above to determine which one best matches your investing goals.

Now that you know how to invest in real estate investment trusts (REITs), you can look for a trustworthy investment platform or a certified financial broker.

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