How to Invest in Real Estate Investment Trusts
Introduction: Why Invest in REITs in 2025?
Ever thought about diversifying beyond the S&P 500? 📊
Real Estate Investment Trusts (REITs) let you invest in income-generating real estate—without owning property. They offer high dividends, diversification, and historically competitive returns compared to stocks.
📈 Performance Check: REITs vs. S&P 500
- From 1972 to 2019, REITs had an average annual return of 11.8%, outperforming the S&P 500’s 10.6%.
- The FTSE NAREIT All Equity REITs index outperformed the Russell 1000 over 20 years (11.6% vs. 6.29%).
Why Invest in REITs?
✅ High Dividends – REITs must distribute 90% of their income to investors.
✅ Passive Real Estate Exposure – No management headaches; just collect dividends.
✅ Diversification – Reduces risk compared to stocks alone.
🚨 But Beware of Risks:
❌ High Debt Levels – REITs rely on leverage, which can be risky.
❌ Slower Growth – Since they pay out most of their earnings, they reinvest less for expansion.
💡 New to investing? Start by understanding how brokerage accounts work before jumping into REITs.
🏆 Best-Performing REITs in 2025
Top Publicly Traded REITs (1-Year Performance)
| Ticker | Company | 1-Year Return | Stock Price |
|---|---|---|---|
| ACR | ACRES Commercial Realty Corp. | +74.40% | $17.75 |
| WELL | Welltower Inc. | +63.42% | $140.38 |
| VNO | Vornado Realty Trust | +63.16% | $42.12 |
| MPW | Medical Properties Trust Inc. | +61.45% | $4.80 |
| TRTX | TPG RE Finance Trust, Inc. | +60.04% | $8.33 |
📝 Source: Nareit (Data as of Feb. 3, 2025).
These REITs focus on different sectors:
- Healthcare (WELL, MPW) 🏥 – Aging population trends drive demand.
- Commercial real estate (VNO) 🏢 – Office & retail spaces recovering post-COVID.
- Real estate financing (TRTX, ACR) 💰 – Mortgage-backed lending for developers.
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📈 Best REIT ETFs for Diversification
If you prefer broad exposure rather than picking individual REITs, REIT ETFs are a great choice:
| Ticker | ETF | 1-Year Performance |
|---|---|---|
| REZ | iShares Residential & Multisector Real Estate ETF | +17.6% |
| HAUS | Residential REIT ETF | +15.2% |
| RSPR | Invesco S&P 500 Equal Weight Real Estate ETF | +10.76% |
| USRT | iShares Core U.S. REIT ETF | +10.15% |
| JRE | Janus Henderson U.S. Real Estate ETF | +9.53% |
🎯 Why Choose a REIT ETF?
✅ Diversification – Spreads risk across multiple REITs.
✅ Lower Risk – Reduces reliance on any single REIT’s performance.
✅ Passive Investing – Ideal for long-term investors.
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🔍 Understanding REIT Categories
1️⃣ Equity REITs (Most Common) 🏢
- Own and manage properties (residential, commercial, industrial).
- Revenue from rent collection.
- Examples:
- Prologis (PLD) – Industrial & logistics real estate.
- AvalonBay (AVB) – Luxury residential apartments.
2️⃣ Mortgage REITs (mREITs) 🏦
- Invest in real estate loans & mortgage-backed securities.
- Riskier but offer higher yields.
- Examples:
- AGNC Investment Corp. (AGNC) – Government-backed mortgage REIT.
- Annaly Capital Management (NLY) – One of the largest mREITs.
3️⃣ Hybrid REITs ⚖️
- Combine Equity & Mortgage REIT strategies.
- Example: New York Mortgage Trust (NYMT)
📌 How to Invest in REITs in 2025
💡 Step 1: Open a Brokerage Account
Platforms like Vanguard, Fidelity, and Interactive Brokers offer access to REITs.
💡 Step 2: Choose REIT Stocks or ETFs
- 🎯 Active investors – Pick individual REIT stocks.
- 💼 Passive investors – Invest in REIT ETFs for diversification.
💡 Step 3: Consider Tax Implications
Since REIT dividends are taxed as ordinary income, consider tax-advantaged accounts (IRA, 401k, PEA) to optimize returns.
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❓ FAQ: Investing in REITs
Are REITs a good investment in 2025?
Yes! They offer passive income, diversification, and inflation protection. However, some REITs are better suited for different market conditions (e.g., healthcare and logistics REITs tend to be recession-resistant).
Do REITs outperform the S&P 500?
Historically, REITs have beaten the S&P 500 over the long term. However, short-term volatility can vary depending on the economic cycle.
Are REITs safe in a recession?
✅ Defensive sectors like healthcare, industrial, and residential REITs tend to perform better.
❌ Office & retail REITs can be more sensitive to downturns.
📌 Key Takeaways
✅ REITs offer high dividends and real estate exposure.
✅ Industrial, healthcare, and residential REITs are top picks for 2025.
✅ REIT ETFs provide easy diversification for beginners.
🔽 Are you investing in REITs this year? Let’s discuss about it with Vera from Finwise ! 🔽