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How to Invest in REITs: Real Estate Investment Trusts

When you invest in a REIT, you purchase a share of a company that manages a portfolio of real estate investments.

Do you want to invest in real estate but don’t want the landlord’s duties? Consider investing in REITs.

What Are REITs?

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate across various property types. They allow individuals to invest in large-scale, income-generating real estate without buying the properties themselves. REITs are required by law to distribute at least 90% of their taxable income to shareholders annually in the form of dividends.

How It Works

When you invest in a REIT, you purchase a share of a company that manages a portfolio of real estate investments. As the properties in the REIT generate income through leasing, renting, or selling, profits are distributed to shareholders in the form of dividends. Additionally, if the REIT’s properties appreciate in value, the share price may increase.

How investors make money through REITs:

  • Dividends: The primary way investors earn from REITs is through dividends paid out from the income the REIT generates. For example, an investor who holds shares in a REIT specializing in office buildings would earn dividends from the rent payments of those buildings’ tenants.
  • Capital Appreciation: If the value of its underlying assets increases, investors may also benefit by allowing investors to sell their shares for a profit.

Where to Invest in REITs

  • Stock Exchanges: Publicly traded REITs can be bought and sold on stock exchanges with a brokerage account.
  • REIT Mutual Funds and ETFs: These funds pool multiple REIT stocks, providing diversification within the real estate sector.

Steps to Invest in REITs

REITs are publicly traded on major stock exchanges, and shares can be bought and sold through brokers just like other public companies. Non-traded REITs are also available and can be purchased through financial advisors or investment platforms, but they are less liquid and have different risk profiles.

By following the steps, you can get started investing in REITs.

Step 1: Choose an Investment Platform

Open a brokerage account if you don’t already have one. Research platforms to find the best fit for your investment strategy.

SERVICEDESCRIPTION
Online BrokerageOnline platforms allow investors to buy and sell securities such as stocks, bonds, mutual funds, ETFs, and REITs. Investors manage their own portfolios and make investment decisions independently. Find online brokerages on phroogal.com.
Investment AppsMobile applications that offer convenience, real-time market data, and user-friendly interfaces make it easier for investors to monitor their portfolios, execute trades, and stay informed on the go. Find investing apps.

Step 2: Research REITs

Evaluate various REITs based on their sector focus, performance history, management team, and dividend yield.

Examples of Popular REITs

  • Equity Residential (EQR): Focuses on residential apartment buildings in urban and high-density suburban areas.
  • Simon Property Group (SPG): Specializes in shopping malls and premium outlets.
  • Public Storage (PSA): Invests in self-storage facilities.
  • Welltower Inc. (WELL): Concentrates on healthcare infrastructure, including senior living and outpatient medical properties.

Step 3: Invest

Purchase shares of your chosen REITs. Consider starting small and diversifying across different types of REITs.

Step 4: Monitor Your Investments

Regularly review your REIT holdings, the performance of the underlying assets, and the overall real estate market.

The Risks Associated with REITs

Investing in REITs offers a way to gain exposure to the real estate sector without owning physical property. However, before investing, it’s essential to conduct thorough research and consider the associated risks.

  • Market Risk: Like all investments, REITs are subject to fluctuations and economic conditions.
  • Interest Rate Risk: REITs often carry debt, and interest rate changes can affect their cost of capital.
  • Sector-Specific Risks: Depending on its focus, a REIT could be impacted by downturns in specific real estate sectors.
  • Liquidity Risk: Non-traded REITs can be difficult to sell quickly and might require investors to hold their investment for an extended period.

What’s the Difference Between REITs and Real Estate Crowdfunding Platforms?

Real Estate Investment Trusts (REITs) and real estate crowdfunding platforms are ways for investors to gain exposure to real estate investments, but they differ.

REITs are established companies that own, operate or finance income-producing real estate. They are highly regulated, publicly listed on major stock exchanges (public REITs), or they can be privately held (private REITs). Investment minimums are generally low for public REITs since they are traded like stocks.

In contrast, real estate crowdfunding platforms allow investors to pool money together to invest in specific real estate projects or properties through equity or debt. Crowdfunding platforms often have lower minimum investments than private REITs but might be higher than buying a few shares of a public REIT. Minimums can range from $500 to several thousand dollars.

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