How to invest in REITs—5 ways to diversify your portfolio with REITs
Updated: September 17, 2024
Real estate investment trusts (REITs) give investors numerous entry points into property ownership without the typical obligations tied to managing real estate. REITs also do a nice job of catering to different investment styles and risk appetites. Need simplicity and instant diversification? REIT ETFs and index funds are go-to options, offering exposure to a broad spectrum of real estate assets with lower fees and easy trading on stock exchanges.
Want to be more hands-on? Investing in individual REIT stocks lets you cherry-pick specific real estate sectors or companies, though it demands thorough research and carries higher risk. Mutual funds provide a middle ground, with professional fund managers actively selecting a diversified portfolio of REITs, balancing the potential for higher returns with added fees. And for the adventurous, private REITs and real estate crowdfunding platforms open doors to exclusive, high-return investments, albeit with less liquidity and higher entry barriers.
No matter your strategy, the REIT market offers a tantalizing array of opportunities to grow your wealth through real estate.
In this article, we’re looking at providers who specialize in different types of REITs, which you can match to your risk tolerance and market interest, including:
- Public REITs: A public REIT is a real estate investment trust listed on major stock exchanges, allowing investors to buy and sell shares, easily. Public REITs provide liquidity, transparency and regulatory oversight, making them accessible and attractive for individual and institutional investors seeking exposure to real estate.
- Equity REITs: An equity REIT is a real estate investment trust that owns and operates income-producing properties. These REITs generate revenue primarily through leasing space and collecting rents on properties such as apartments, office buildings and shopping centers, providing investors with regular dividend income and potential for asset growth.
- Electronic REITs: eREITs are digital, online-accessible, non-traded REITs that offer real estate investments with lower fees and enhanced accessibility via online platforms.
- Non-traded REITs: A non-traded REIT is a real estate investment trust not listed on public exchanges, pooling investor funds to purchase and manage income-producing properties, providing potential stable income through dividends and long-term capital appreciation. These investments often have higher fees but are less susceptible to market volatility.
What is a REIT?
REITs offer investors the potential for property income, without the landlord hassles. A REIT owns and operates income-generating real estate, making it a savvy diversification play for investors. REITs deliver reliable dividends and growth potential, allowing investors to enjoy the benefits of real estate exposure across various sectors and locations without the hassle of direct ownership.
REITs have become a favored investment choice for those looking to diversify their portfolios. One compelling reason is their ability to provide a steady income stream through dividends. REITs are required to distribute at least 90% of their taxable income to shareholders annually, which often results in higher dividend yields compared to other equities. The average dividend yield for REITs in April 2024 was 4.35%1, compared to S&P 500’s 1.35%2.
Moreover, REITs offer exposure to the real estate market without the need to directly own or manage properties, reducing the complexities and costs associated with real estate ownership. This makes them accessible and appealing to a broad range of investors. Publicly traded REITs also provide liquidity and transparency, as they are listed on major stock exchanges and regulated by the SEC.
REITs also enhance portfolio diversification. Real estate often behaves differently from stocks and bonds, offering a hedge against market volatility. This combination of income, growth potential and diversification makes REITs a compelling choice for investors seeking to balance and enhance their portfolios.
How to invest in public REITs
Investing in public REITs is straightforward: open a brokerage account, research various REITs listed on major stock exchanges and purchase shares, just like you would with any other stock.
- 1.
ETFs: Investing in REIT ETFs involves buying shares of exchange-traded funds that hold a diversified portfolio of REITs. These ETFs trade on stock exchanges and offer instant diversification, lower fees and ease of buying and selling, making them an accessible option for investors seeking exposure to the real estate sector.
- 2.
Index funds: REIT index funds track the performance of a specific REIT index, such as the FTSE Nareit All REITs Index. By investing in these funds, investors gain broad exposure to the REIT market, with the added benefits of diversification and lower management fees, as the funds passively follow the index’s performance.
- 3.
Mutual funds: REIT mutual funds pool money from multiple investors to invest in a diversified portfolio of REITs. These funds are actively managed by professional fund managers who select and manage the investments, aiming to achieve higher returns. Mutual funds offer diversification and professional management but may come with higher fees.
- 4.
Individual stocks: Investing in individual REIT stocks involves purchasing shares of specific publicly traded REITs. This allows investors to directly own a portion of the REIT’s real estate portfolio. While offering the potential for higher returns, this approach requires thorough research and carries more risk due to lack of diversification.
- 5.
Alternatives: Other ways to invest in REITs include private REITs, which are not publicly traded, and real estate crowdfunding platforms. Private REITs can offer higher returns but come with less liquidity and higher minimum investment requirements. Crowdfunding platforms allow smaller investments in real estate projects, providing access to property investments with lower entry barriers.
Leading REIT providers to match your strategy and risk profile
Arrived - Equity REITs
- Type of REITs offered: Equity REIT
- Account minimum: $100
- Fees: Single Family Residential Fund REIT: Quarterly 0.25% assets-under-management (AUM) fee; Private Credit Fund REIT: Monthly 0.1% AUM fee, based on net assets
How do Arrived REITs work?
Arrived’s Single Family Residential Fund allows investors to purchase shares in single-family rental properties, earning passive income through rental payments and potential property appreciation. Arrived manages all aspects, from acquisition to maintenance, ensuring hassle-free investment.
The Private Credit Fund focuses on real estate debt, providing loans to property developers and owners. Investors earn income through interest payments on these loans, benefiting from the stability and lower volatility typically associated with debt investments.
How to invest in REITs with Arrived
To invest in Arrived’s Single Family Residential Fund or Private Credit Fund, start by creating an account on the Arrived platform. Complete the necessary verification steps. Browse the available funds, reviewing details on properties, expected returns and associated risks. Select the funds that align with your investment goals and determine your investment amount, starting as low as $100.
Once selected, sign the required documents electronically and fund your investment. Arrived manages all aspects of property acquisition, maintenance and rental management, providing quarterly distributions of rental income or interest payments to investors.
Fundrise - Electronic REITs
- Type of REITs offered: eREITs
- Account minimum: $10
- Fees: Annual management fee: 0.85%; Annual advisory fee: 0.15%
How do Fundrise REITs work?
Fundrise offers eREITs, which are electronically traded real estate investment trusts focusing on diverse real estate assets like residential, commercial and industrial properties. These eREITs pool investor funds to purchase and manage income-producing properties, generating returns through rental income and property appreciation. Fundrise leverages technology to streamline operations, reduce costs and enhance efficiency.
By investing in Fundrise eREITs, investors can gain exposure to a diversified portfolio of real estate assets with a low minimum investment, making it accessible to a broader range of investors. Fundrise handles all aspects of property management, providing investors with quarterly dividends and updates on their investments.
How to invest in REITs with Fundrise
Investing in Fundrise eREITs is simple and accessible. Start by creating an account on the Fundrise platform and complete the necessary verification steps. Browse the available eREITs and select those that match your investment goals. You can start investing with as little as $10.
Once you’ve chosen your eREITs, Fundrise manages the entire process, including property acquisition, management and maintenance. Investors receive quarterly dividends and can track their investments through the Fundrise dashboard. The platform provides transparency and regular updates, making it easy to monitor the performance of your investments.
Streitwise - Non-traded REITs
- Type of REITs offered: Non-traded REIT
- Account minimum: Equal to 500 shares priced at market value
- Fees: 2% annual fee, taken from dividend payments
How do Streitwise REITs work?
Streitwise offers non-traded REITs focused on institutional-quality commercial real estate. These REITs are designed to provide stable, long-term income through dividends, derived from rental income generated by the properties in their portfolio. Unlike publicly traded REITs, Streitwise REITs are not subject to stock market volatility, which can result in higher returns.
Streitwise manages all aspects of the properties, from acquisition to maintenance, ensuring efficient operation. Investors benefit from the stability of commercial real estate investments, with a transparent fee structure that avoids the hidden costs often associated with other non-traded REITs.
How to invest in REITs with Streitwise
To invest in Streitwise REITs, start by creating an account on the Streitwise platform. Complete the necessary verification steps and browse the available offerings. Once you have selected a REIT that aligns with your investment goals, you can invest a minimum amount equal to 500 shares based on their value at the time of purchase.
Streitwise handles all property management tasks, providing investors with quarterly dividends and regular updates on their investment performance. The platform ensures a straightforward investment process, making it accessible for both accredited and non-accredited investors.
RealtyMogul - Non-traded REITs
- Type of REITs offered: Non-traded REITs (Income REIT, Apartment Growth REIT)
- Account minimum: $5,000
- Fees: Annual management fees typically range from 1% to 1.25%; Servicing fee: 0.5%; Additional fees may apply based on individual REITs
How do Realty Mogul REITs work?
RealtyMogul offers non-traded REITs focused on commercial and multifamily real estate. The Income REIT invests in a diversified portfolio of commercial properties across various sectors, aiming to generate consistent cash distributions. The Apartment Growth REIT targets multifamily properties with value-add opportunities, aiming for both income and capital gain.
These REITs are not publicly traded, which means they are less affected by market volatility but also less liquid. RealtyMogul manages all aspects of property acquisition, management, and maintenance, providing professional oversight to maximize value for investors.
How to invest in REITs with Realty Mogul
To invest in RealtyMogul’s REITs, create an account on the RealtyMogul platform and complete the verification process. Review the available REITs, including detailed information about their portfolios, expected returns, and risks. With a minimum investment of $5,000, you can choose to invest in the Income REIT for steady dividends or the Apartment Growth REIT for potential growth.
RealtyMogul handles all aspects of property management, and investors receive regular updates and distributions. The platform also offers a Share Repurchase Program for limited liquidity, allowing for quarterly share repurchases after a one-year holding period.
Upright (Fund That Flip) - Non-traded REITs
- Type of REITs offered: Non-traded REITs (Horizon Residential Income Fund)
- Account minimum: $15,000
- Fees: Upfront investment fee: 0%; Annual management fee: 1% to 2%
How does Upright’s REIT work?
Upright, which offers its platform to accredited investors only, offers the Horizon Residential Income Fund (HRIF), a non-traded REIT that invests in short-term residential bridge loans. The fund collects interest payments and fees on these loans and makes quarterly distributions to investors.
With a REIT structure, HRIF provides tax advantages and aims for returns of 10% to 13% annually. The fund leverages investment principals to purchase whole residential bridge loans, reinvesting repayments into new loans until the fund is closed. This approach offers instant and revolving diversification, providing steady income and growth potential.
How to invest in a REIT with Upright
To invest in Upright’s Horizon Residential Income Fund, start by creating an account on the Upright platform and complete the verification process. Once invested, Upright manages the entire process, including loan origination and management. Investors receive quarterly distributions and can monitor their investments through the Upright dashboard. The platform also offers transparency through regular performance updates and reports, ensuring investors stay informed about their portfolio’s performance.
What type of REIT is best for you?
Equity REITs may be the most appropriate type of REIT for most investors. Equity REITs own and manage income-producing real estate properties, such as shopping centers, office buildings, apartments and hotels. They generate revenue primarily through leasing space and collecting rent from tenants, providing a stable and regular income stream for investors.
Equity REITs are broadly appealing to investors because they offer the potential for both income and capital appreciation. Properties owned by equity REITs can increase in value over time, allowing investors to benefit from capital gains in addition to rental income. Moreover, equity REITs are typically less sensitive to interest rate fluctuations compared to mortgage REITs, making them a more stable investment option.
REIT requirements: What qualifies as a REIT?
To qualify as a REIT, a company must meet specific requirements set forth by the Internal Revenue Service (IRS), ensuring they are primarily engaged in real estate activities and provide substantial income to shareholders through dividends. By adhering to these criteria, REITs can benefit from a unique tax structure that exempts them from corporate income taxes, provided they distribute a significant portion of their income to shareholders.
Criteria to qualify as a REIT:
Income requirement: At least 75% of the REIT’s gross income must come from real estate-related sources, such as rents from properties, interest on mortgages, or sales of real estate.
Asset requirement: At least 75% of the REIT’s total assets must be invested in real estate, cash or government securities.
Distribution requirement: The REIT must distribute at least 90% of its taxable income to shareholders annually in the form of dividends.
Organizational requirement: The REIT must be organized as a corporation, trust or association and managed by a board of directors or trustees.
Shareholder requirement: The REIT must have at least 100 shareholders after its first year of existence, and no more than 50% of its shares can be held by five or fewer individuals during the last half of the taxable year.
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Chris Clark is freelance contributor with MoneyWise, based in Kansas City, Mo. He has written for numerous publications and spent 18 years as a reporter and editor with The Associated Press.
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