How to Invest in REITs: A Beginner’s Guide to Real Estate Investing Without Buying Property
Let’s explore with an in-depth analysis on how to invest in REITs. Real estate is one of the most trusted ways to build long-term wealth, but let’s be real—not everyone wants to deal with tenants, toilets, or property taxes. That’s why more people are learning how to invest in REITs (Real Estate Investment Trusts), a much easier path to real estate exposure and potential passive income.
What is REIT?
REITs are companies that own, operate, or finance income-producing properties. They’re legally required to distribute at least 90% of their taxable income as dividends, making them a favorite for income-seeking investors.
Frequently Asked Questions
What are REITs and how do they work?
REITs, or Real Estate Investment Trusts, are companies that own, operate, or finance income-producing properties. Think of them as a way to invest in a portfolio of real estate without the hassle of directly buying, managing, or maintaining properties. Legally, REITs are required to distribute at least 90% of their taxable income to shareholders as dividends, making them attractive for investors seeking regular income.
What are the different types of REITs?
There are three main types of REITs, each with a slightly different focus:
- Equity REITs: These are the most common type and directly invest in and operate properties such as apartments, shopping malls, office buildings, and industrial warehouses. They generate income primarily through rent collection. If you’re interested in passive income, equity REITs are often the go-to option.
- Mortgage REITs (mREITs): Instead of owning properties, mREITs invest in mortgages and mortgage-backed securities. Their income is generated from the interest earned on these investments.
- Hybrid REITs: As the name suggests, hybrid REITs combine the strategies of both equity and mortgage REITs, holding a mix of properties and mortgage-related assets.
How can someone start investing in REITs?
Investing in REITs is accessible through a brokerage account, similar to buying stocks. Here’s a basic step-by-step guide:
- Know Your REIT Types: Understand the different types of REITs and which aligns with your investment goals (e.g., equity REITs for passive income).
- Define Your Financial Goal: Determine your investment objectives, such as desired monthly income, investment timeline, and whether you prioritize growth, income, or both.
- Open an Account: Set up an account with a reliable brokerage platform like Vanguard or Fidelity.
- Decide on Individual vs. Funds: Choose between buying individual REIT stocks or investing in diversified REIT ETFs or mutual funds. Funds are often recommended for beginners due to built-in diversification.
- Make Your Investment: Fund your account, search for your chosen REIT or fund, specify the number of shares, and place your purchase order.
What is the typical historical performance and dividend payout of REITs?
REITs have a strong track record as a long-term investment. Historically, the FTSE NAREIT All Equity REITs Index has shown an average annual return of approximately 10.6% from 1990 to 2023. Popular REIT ETFs like VNQ have returned around 8-10% annually, including dividends, since their inception. In certain favorable market conditions, some top-performing REITs have even yielded returns exceeding 15-20% annually.
Regarding dividends, REITs are known for their relatively high yields compared to the S&P 500. REITs typically offer average yields of 3-6%, while the S&P 500 averages around 1.5-2%. This higher dividend payout is a result of their legal requirement to distribute a significant portion of their income to shareholders.
How much money is needed to start investing in REITs for passive income?
You can start investing in REITs with a relatively small amount, potentially as little as $100 using fractional shares or no-minimum mutual funds. However, to generate meaningful passive income, a larger investment is generally required. For example, a $10,000 investment in a REIT ETF with a 4% annual dividend yield would generate approximately $400 per year, or about $33 per month. To reach a passive income goal of, say, $500 per month ($6,000 per year), you might need an investment in the range of $130,000 to $150,000, depending on the specific REITs or funds and their dividend yields.
What are the main advantages of investing in REITs?
Investing in REITs offers several key advantages:
- High Dividends: The legal requirement for REITs to distribute at least 90% of their taxable income results in potentially higher dividend payouts compared to other types of investments.
- Diversification: REITs provide exposure to the real estate market, adding a layer of diversification to a traditional portfolio of stocks and bonds.
- Liquidity: Publicly traded REITs can be bought and sold on major stock exchanges, offering greater liquidity than direct property ownership.
- Accessibility: Platforms like Vanguard and Fidelity make it easy for individuals to invest in REITs with relatively low minimum investment amounts.
What are the potential risks of investing in REITs?
While offering benefits, REIT investments also come with certain risks:
- Taxable Income: REIT dividends are often taxed as ordinary income, which can be at a higher rate than long-term capital gains.
- Interest Rate Sensitivity: Rising interest rates can negatively impact REIT performance as they can make bonds and other fixed-income investments more attractive, potentially leading to lower demand for REITs.
- Market Volatility: Like any stock, REIT prices are subject to the fluctuations and volatility of the broader stock market.
- Sector-Specific Risks: Performance can vary depending on the specific real estate sector the REIT focuses on. For instance, retail REITs can be affected by e-commerce trends, while office REITs face uncertainties due to remote work.
What is the outlook for REITs as a passive income strategy?
The long-term outlook for REITs as a passive income strategy appears positive. Several factors support continued growth and income generation:
- Demographic Shifts: An aging population drives demand for healthcare and residential REITs.
- E-commerce Growth: The rise of online shopping fuels demand for industrial and logistics REITs (warehouses, data centers).
- Rising Rents and Property Values: Generally, increasing rents and property values contribute to higher REIT earnings.
- Inflation Resistance: Rents often adjust with inflation, making REITs a potential hedge against rising prices.
While susceptible to economic cycles and interest rate changes, REITs are expected to remain a core asset for investors seeking income and portfolio diversification. Consistent investment and dividend reinvestment can realistically build a substantial passive income stream over time.
Explore the step-by-step guide below for more specific information.
Step-by-Step Guide on How to Invest in REITs
Step 1: Know Your REIT Types
Before jumping in, you need to understand the three main types of REITs:
- Equity REITs – Invest in and operate properties (like apartments, malls, and offices).
- Mortgage REITs (mREITs) – Invest in loans and mortgage-backed securities.
- Hybrid REITs – A combination of both.
If you’re interested in passive income, equity REITs are the go-to option.
Step 2: Define Your Financial Goal
Ask yourself:
- How much monthly income am I targeting?
- How long can I let this money grow?
- Am I looking for growth, income, or both?
These answers will shape how you invest and which REITs or REIT funds you choose.
Step 3: Open an Account With a Reliable Platform
You’ll need a brokerage account to buy REITs. Two great options are:
- Vanguard – Offers low-fee REIT ETFs like the Vanguard Real Estate ETF (VNQ).
- Fidelity – Provides a wide range of REIT funds and great research tools.
Once you fund the account, you’re ready to go.
Step 4: Decide Between Individual REITs and REIT Funds
There are two main ways to invest:
- Individual REIT stocks (e.g., Realty Income Corp, Prologis)
- REIT ETFs or Mutual Funds: These offer built-in diversification. For example:
- Vanguard Real Estate ETF (VNQ)
- Fidelity® Real Estate Investment Portfolio (FRESX)
If you’re new and still learning how to invest in REITs, REIT funds can offer a safer, more diversified entry point. For most beginners asking how to invest in REITs, a diversified fund is safer and simpler.
Step 5: Make Your First Investment
Once your account is funded, search for your desired REIT or REIT fund, enter the number of shares, and make the purchase. Congrats! You’ve taken a real step toward understanding how to invest in REITs.
The Best REITs to Invest In (As of 2024–2025)
Here are some consistently top-performing REITs with strong track records and dividend payouts:
1. Realty Income Corporation (O)
- Dividend yield: ~5%
- Type: Retail, commercial
- Known as: “The Monthly Dividend Company”
2. Prologis (PLD)
- Dividend yield: ~2.7%
- Type: Industrial/logistics (warehouses, e-commerce)
- Growth driver: Amazon, FedEx, e-commerce boom
3. Welltower (WELL)
- Dividend yield: ~3.6%
- Type: Healthcare (senior housing, medical offices)
4. American Tower (AMT)
- Dividend yield: ~3.3%
- Type: Infrastructure (cell towers)
- Bonus: Strong long-term capital appreciation
5. Vanguard Real Estate ETF (VNQ)
- Dividend yield: ~3.8%
- Type: REIT ETF (diversified holdings)
- Low-cost, high-diversification option
Performance and Lucrativeness of REITs
Here’s why people researching how to invest in REITs get excited:
Historical Stats:
- The FTSE NAREIT All Equity REITs Index returned an average of ~10.6% annually from 1990–2023.
- VNQ, one of the most popular REIT ETFs, has returned ~8–10% annually including dividends since inception.
- During certain bull markets, top REITs like Prologis have returned 15–20%+ annually.
Dividend Payouts:
- REITs generally offer higher yields than the S&P 500 (REITs avg. 3–6% vs. S&P’s 1.5–2%).
So yes—REITs can be highly lucrative as long-term passive income plays, especially when reinvested.
How Much Do You Need to Start Investing in REITs for Passive Income?
You can technically start with as little as $100 using fractional shares or no-minimum mutual funds. But for meaningful passive income, here’s a realistic scenario:
Scenario: $10,000 REITs Investment
Let’s say you invest $10,000 into a REIT ETF like VNQ, which has historically paid an average annual dividend yield of 3.5%–4.5%.
- Annual dividend (4% yield) = $400
- Monthly passive income = ~$33
If your goal is $500/month in passive income (or $6,000/year), you’d need around $130,000–$150,000 invested in REITs (depending on dividend yield and fees).
Strategy to Grow Into Passive Income:
- Start with what you can afford (e.g., $1,000–$10,000).
- Reinvest dividends to compound growth over time.
- Make regular contributions (monthly or quarterly).
- Diversify with a mix of REITs and sectors (residential, healthcare, industrial, etc.).
This is how many investors build a long-term passive income stream.
Pros and Cons of REIT Investing
Knowing both sides of the coin will help you make better choices.
Pros:
- High dividends: REITs are required by law to distribute at least 90% of taxable income to shareholders.
- Diversification: Adds exposure to real estate in a traditional stock and bond portfolio.
- Liquidity: Publicly traded REITs can be bought and sold like any stock.
- Access: With platforms like Vanguard and Fidelity, it’s easier than ever to get started.
Cons:
- Taxable income: REIT dividends are often taxed as ordinary income, which can be higher than long-term capital gains.
- Interest rate sensitivity: Rising rates can negatively impact REIT performance.
- Market volatility: Like any stock, REITs are subject to market ups and downs.
How to Minimize Risks When Investing in REITs
If you’re learning how to invest in REITs, understanding risk is crucial.
- Diversify across sectors (Spread across sectors like industrial, healthcare, residential, and infrastructure.).
- Use ETFs like VNQ or FREL: Built-in diversification and lower risk.
- Invest gradually: Use dollar-cost averaging to reduce timing risk.
- Reinvest dividends (Maximize compounding and long-term growth).
- Avoid high-debt REITs – check balance sheets or stick to reputable funds.
- Stay informed – platforms like Vanguard and Fidelity offer in-depth REIT research tools.
Despite the upside, every investor learning how to invest in REITs must understand the risks:
Interest Rate Sensitivity
- REITs tend to dip when interest rates rise, as bonds become more attractive.
Market Volatility
- REIT prices can swing with the stock market even if the underlying property income remains stable.
Sector-Specific Risks
- Retail REITs may suffer from e-commerce competition.
- Office REITs face long-term uncertainty from remote work trends.
What’s the Outlook for REITs as a Passive Income Strategy?
The future of REITs looks positive for long-term income seekers:
- Demographics: Aging populations drive demand for healthcare and residential REITs.
- E-commerce: Industrial REITs (e.g., warehouses, data centers) benefit from online shopping trends.
- Remote work: Affects office REITs, but benefits residential and logistics sectors.
- Data centers, logistics, and healthcare REITs are expected to grow rapidly due to:
- 5G expansion (AMT, CCI)
- Aging population (WELL, VTR)
- E-commerce growth (PLD, STAG)
- Rising rents and property values generally push REIT earnings upward.
- REITs are also inflation-resistant because rents often adjust with inflation.
While REITs can be cyclical and affected by interest rates, they remain a core income-generating asset for retirement portfolios and dividend investors.
If you consistently invest and reinvest over time, REITs can realistically produce hundreds—or even thousands—of dollars per month in passive income.
Explore: Global REIT Investment Strategy
Let’s look at Global REIT Investment Strategy
Objectives:
- Diversification across international real estate markets
- Passive income through dividends
- Hedge against inflation and currency fluctuations
- Exposure to different property sectors (commercial, residential, industrial, healthcare, data centers)
Key Components:
- Regional Allocation
- North America 🇺🇸🇨🇦
- Europe 🇬🇧🇩🇪🇫🇷
- Asia-Pacific 🇯🇵🇸🇬🇦🇺
- Emerging Markets 🌐
- Sector Allocation
- Retail 🛍️
- Industrial/Logistics 📦
- Residential 🏢
- Data Centers 💻
- Healthcare 🏥
- Office 🏬
- REIT Types
- Equity REITs (own and manage properties)
- Mortgage REITs (invest in property loans)
- Hybrid REITs (mix of both)
Tips for Global REIT Investing:
- Use ETFs to simplify diversification
- Watch currency risks (FX exposure can affect returns)
- Focus on net asset value (NAV) and funds from operations (FFO)
- Monitor interest rates, especially in each region
Explore: REITs Investment Focus – Global REIT Strategies
1. Dividend-Focused Strategy
Objective:
Maximize reliable income from high-yielding REITs with consistent dividend payouts.
Characteristics:
- High dividend yield (4%–8%+)
- Stable, cash-flowing property types (e.g., retail, residential, healthcare)
- Mature REITs with long track records
- Ideal for income investors and retirees
Top Picks:
- Realty Income (O) – U.S., monthly dividend king
- Link REIT – Hong Kong, large-scale retail and car parks
- Ascendas REIT – Singapore, strong logistics/industrial play
- Scentre Group (SCG.AX) – Australia, Westfield malls
- Vanguard Global ex-U.S. Real Estate ETF (VNQI) – Broad, income-focused
2. Growth-Focused Strategy
Objective:
Capitalize on capital appreciation and NAV expansion over time.
Characteristics:
- Lower current yield, higher growth potential
- Exposure to fast-growing sectors (e.g., data centers, logistics, life sciences)
- Markets with population and economic growth
Top Picks:
- Prologis (PLD) – Global leader in logistics/industrial
- Goodman Group (GMG.AX) – High-growth industrial REIT in APAC
- Digital Realty Trust (DLR) – Global data center REIT
- American Tower (AMT) – Communications/data infrastructure
- Segro Plc (SGRO.L) – Logistics across UK and Europe
3. Diversification-Focused Strategy
Objective:
Achieve broad exposure to multiple regions and sectors to reduce risk and smooth returns.
Characteristics:
- Exposure to developed and emerging markets
- Multi-sector allocation (retail, office, residential, industrial)
- Ideal for long-term portfolio stability
Top Picks:
- iShares Global REIT ETF (REET) – U.S. + global diversification
- Vanguard Real Estate ETF (VNQ) – U.S.-heavy but broadly diversified
- Mapletree Logistics Trust – Covers APAC supply chain real estate
- CapitaLand Integrated Commercial Trust – Mix of retail, commercial
- Combine 2–3 regional REITs to cover U.S., Europe, and APAC
Pro Tips on How to Invest in REITs:
- Combine strategies: e.g., 60% Dividend, 30% Growth, 10% Diversification
- Rebalance annually to lock in gains and manage risks
- Use REIT ETFs for simplicity and global exposure
Final Thoughts on How to Invest in REITs
If you’re exploring how to invest in REITs, remember this: You don’t need to be wealthy or own buildings to profit from real estate. With platforms like Vanguard and Fidelity, even a small initial investment can grow into a steady stream of income over time.
Whether you’re looking to supplement your salary, save for retirement, or simply diversify your portfolio, now is a great time to start investing in REITs—and start building your path toward passive income.
If you’re serious about building passive income, now is the time to understand how to invest in REITs. With a mix of consistent dividends, capital appreciation, and accessibility through platforms like Vanguard and Fidelity, REITs remain a powerful tool in the modern investor’s toolkit.
Whether you’re starting with $500 or planning to scale up to six figures, REITs offer a smart and scalable way to earn from real estate—without owning a single property. Read more about the regulations for REITs.
