Real estate investment trusts (REITs) have done well over the years. They’ve given an average return of 11.8% annually from 1972 to 2019. This is better than the S&P 500’s 10.6% return. This makes REITs a great choice for those looking to diversify their investments and earn steady income.
REITs are companies that own and manage real estate or mortgages. They must pay out at least 90% of their taxable income as dividends. This setup lets investors get into big real estate projects without the hassle of managing them directly.
This article is for both seasoned and new investors in REITs. It covers the best REIT stocks and ETFs. You’ll learn about the different types of REITs, their past performance, and what to look for when picking REITs.
Key Takeaways
- REITs have outperformed the broader stock market, delivering an average annual total return of 11.8% from 1972 to 2019.
- There are three main types of REITs: equity REITs, mortgage REITs, and hybrid REITs, each with its own investment characteristics and potential returns.
- Investors can access REITs through publicly traded stocks and ETFs, as well as public non-traded and private REITs.
- Top-performing REIT stocks and ETFs in July 2024 include Strawberry Fields REIT, Iron Mountain, and the Pacer Industrial Real Estate ETF.
- Evaluating REIT financials, such as net asset value (NAV) and debt-to-equity ratio, is essential for identifying the best investment opportunities.
What is a Real Estate Investment Trust (REIT)?
A Real Estate Investment Trust (REIT) is a company that deals with real estate. It was created in 1960 to let people invest in big, income-generating properties. To be a REIT, a company must own at least 75% of its assets in real estate. It also needs to make 75% of its income from real estate and give out 90% of its taxable income as dividends.
Definition and Overview of REITs
REITs are set up to avoid corporate taxes, which means they can offer higher returns than other real estate companies. Today, about 170 million Americans have money in REITs through things like 401(k)s and IRAs. This shows how popular and widespread REIT investments are.
How REITs Work
REITs work like mutual funds but for real estate. Since 1960, the money put into REITs has grown a lot. They have to give out at least 90% of their taxable income to shareholders. This setup helps REITs offer steady dividends and the chance for your money to grow over time.
“REITs have historically provided competitive total returns over the past 45 years, outperforming the broader stock market, bonds, and other assets.”
Investing in REITs means you get to spread your money across different types of real estate. This includes everything from shopping centers to office buildings. For beginners, starting with publicly traded REITs is a good idea. They are easy to get into and can be sold quickly.
When looking into REITs, make sure to check their investments and long-term plans. Also, look at the fees. Spreading your money across various REITs and real estate areas can help make your investments more stable and less risky.
Types of REITs
Real estate investment trusts (REITs) are divided into three main types: equity REITs, mortgage REITs (mREITs), and hybrid REITs. It’s key for investors to know the differences to diversify their real estate investments.
Equity REITs
Equity REITs own and manage properties like apartments, retail spaces, and offices. They make money from rents and leases. These REITs often give higher returns than the S&P 500.
Mortgage REITs (mREITs)
Mortgage REITs focus on real estate debt, like mortgages and securities backed by mortgages. They earn from interest. These REITs help fund over 1.7 million home mortgages, offering a way to invest in the mortgage market.
Hybrid REITs
Hybrid REITs mix equity and debt investments. They aim to reduce risk by spreading their investments. These REITs benefit from both the equity and debt markets.
Each REIT type has its own risk and return levels. Investors should think about their goals and how much risk they can handle when picking REITs for their portfolios.
“REITs are required by the IRS to pay out at least 90% of their taxable income in dividends, making them an attractive option for investors seeking consistent income.”
Investing in Publicly Traded REITs
Investors looking to tap into the real estate market can look at publicly traded REITs. These publicly traded REITs are listed on stock exchanges. They offer the perks of being easy to buy and sell, and their financial details are open to everyone. With over 225 options in the U.S., investors have many REIT stocks and REIT ETFs to choose from for a diverse portfolio.
There are many benefits to investing in publicly traded REITs. For one, investors can easily trade REIT shares, unlike private ones which can be hard to sell. This ease of trading lets investors quickly change their REIT investments as needed. Also, publicly traded REITs are more transparent, with their financial info and operations widely shared and watched.
| Top-Performing REIT Stocks: July 2024 | 1-Year Total Return | Share Price |
|---|---|---|
| SL Green Realty Corp. | – | $55.00 |
| Strawberry Fields REIT | 72.80% | $11.55 |
| Iron Mountain | 65.95% | $91.60 |
| Angel Oak Mortgage, Inc. | 61.98% | $11.71 |
| ACRES Commercial Realty Corp. | 52.85% | $13.13 |
Investors might also think about REIT ETFs for a diversified real estate investment. These funds track various REIT indexes. This makes it easy for investors to get into a wide range of publicly traded REITs.
“Real estate investment trusts have been identified as a good hedge against inflation but are often considered low-growth investments with minimal capital appreciation.”
Even with the benefits of publicly traded REITs, investors should do their homework. They should find the best REIT stocks and REIT ETFs that fit their goals and how much risk they can take.
Public Non-Traded and Private REITs
Real estate investors looking to diversify can consider public non-traded and private REITs. These options are different from publicly traded REITs but share some similarities. It’s important for investors to understand these differences.
Differences and Considerations
Public non-traded REITs are registered with the SEC but not listed on an exchange. This makes them less liquid than publicly traded REITs. They usually have higher investment minimums, from $1,000 to $2,500, and may have extra costs like upfront commissions and trail fees. But, they must make regular financial reports, including quarterly and annual results.
Private REITs don’t need SEC registration and have fewer reporting requirements. This can make it harder to know how they’re doing. They’re mainly for accredited investors and may have stricter rules. Even though they might offer higher returns, they don’t have the same liquidity or transparency as public REITs.
When thinking about public non-traded or private REITs, look at the REIT liquidity, REIT transparency, and REIT fees. Knowing the unique traits and risks of each type can help investors make choices that fit their goals and how much risk they can take.
Historical Performance of REITs
Real Estate Investment Trusts (REITs) have been a top performer over the years. The FTSE NAREIT All Equity REITs Index shows an average return of 11.8% annually from 1999 to 2019. This is higher than the 6.29% annual return of the Russell 1000 stock index.
Looking at a 25-year span ending in March 2024, the FTSE NAREIT Equity REIT Index had a return of 9.63%. This is better than the S&P 500’s 7.78% and the Russell 2000’s 8.37%. REITs are a great choice for those looking for income and diversification.
| Investment | Average Annual Total Return |
|---|---|
| FTSE NAREIT Equity REIT Index (25-year) | 9.63% |
| S&P 500 (25-year) | 7.78% |
| Russell 2000 (25-year) | 8.37% |
In recent years, stocks have done well, but REITs have beaten the S&P 500 over 20, 25, and 50 years. Dividends have played a big part in the S&P 500’s returns since 1930, making up 41%. Companies that paid dividends did much better than those that didn’t, with a 9.2% return versus -0.6% from 1973 to 2022. Half of REITs’ gains come from dividends, making them a solid choice for those seeking income.
The REIT sector has a beta of 0.75, showing it’s less volatile than the S&P 500. This, along with their strong long-term performance, makes REITs a smart addition to a diversified portfolio.
“REITs consistently perform better than the broader U.S. stock market over longer time periods.”
Top-Performing REIT Stocks and ETFs
Real estate investment trusts (REITs) are a top pick for smart investors. By July 2024, some REIT stocks and ETFs showed great returns. They offer a chance to tap into the booming real estate market.
Best REIT Stocks: July 2024
SL Green Realty Corp. is a standout with a 72.80% one-year return. Strawberry Fields REIT also shines with a 65.95% return. Angel Oak Mortgage, Inc. has a 61.98% return, catching investors’ eyes.
Best REIT ETFs: July 2024
For those looking at REIT ETFs, several funds have done well. The Pacer Industrial Real Estate ETF, Nuveen Short-Term REIT ETF, and Real Estate Select Sector SPDR Fund are top picks. They offer a way to invest in real estate with just one investment.
| REIT ETF | Assets Under Management | Dividend Yield | Expense Ratio | 5-Year Annualized Return |
|---|---|---|---|---|
| Vanguard Real Estate ETF (VNQ) | $34.1 billion | 4.3% | 0.12% | 2.0% |
| iShares U.S. Real Estate ETF (IYR) | $3.3 billion | 2.9% | 0.40% | 1.8% |
| Real Estate Select Sector SPDR Fund (XLRE) | $6.4 billion | 3.7% | 0.09% | 3.5% |
These REIT stocks and REIT ETFs have given investors strong returns. They highlight the real estate sector’s potential as a strong investment choice.
Best Real Estate Investment Trust Sectors
Real estate investment trusts (REITs) let investors spread out their money across different property types. Retail REITs and residential REITs are two main areas to look at. Each offers its own set of opportunities and things to think about for smart investors.
Retail REITs
Retail REITs manage shopping malls, shopping centers, and other retail spots. Their success depends on the retail industry’s health and how much people spend. By July 2024, the Morningstar US Real Estate Index showed retail REITs were 8.5% undervalued. This means they could grow in value for investors.
Some top retail REITs include:
- Park Hotels & Resorts, which is trading 42% below Morningstar’s fair value estimate of $25 per share.
- Macerich, which is trading 36% below the fair value estimate of $24 per share.
Residential REITs
Residential REITs focus on multi-family rentals and manufactured homes. They benefit from growing populations and affordable housing in key areas. Over the past year, the Morningstar US Real Estate Index went up 7.25%. The broader Morningstar US Market Index rose 26.40%. This shows there could be more growth for residential REITs.
Kilroy Realty is a standout in residential REITs. It’s seen as 40% undervalued, with a fair value estimate of $59 per share.
When looking at retail and residential REITs, consider things like occupancy rates, rent growth, and the economic conditions of their markets. This helps make better investment choices.
About 170 million Americans have their homes tied to REITs through their retirement accounts and other funds. This makes the REIT industry very popular among investors looking to get into real estate.
“REITs historically have delivered competitive total returns over the past 45 years compared to the broader stock market, bonds, and other assets.”
Best Real Estate Investment Trust Sectors
Healthcare REITs
Healthcare REITs are a top choice for smart investors. They invest in real estate like hospitals and nursing homes. Their success depends on healthcare funding and reimbursements from Medicare and Medicaid.
Investors should look for companies with a mix of property types and strong management. This helps them stay strong in a changing healthcare market. Trends like more senior living and outpatient care are big opportunities.
The healthcare REIT sector has done well, with the Vanguard Real Estate ETF (VNQ) returning 9.4% in the last year. This shows healthcare REITs can offer steady income and growth in real estate.
“Healthcare REITs have shown they can handle tough times. Their assets are essential, and they have steady cash from long leases with reliable tenants.”
As healthcare changes, healthcare REITs with a mix of properties and strong leadership could offer steady gains. They are a good choice for those looking at the REIT sectors and REIT industry performance.
Best Real Estate Investment Trust Sectors
Office REITs are a top choice for smart investors. Office REITs buy commercial office buildings and make money from long-term leases. Knowing what makes office REITs successful is key for smart investing.
Office REITs
Office REITs are becoming more popular. They own and manage commercial office buildings. This gives investors a chance to invest in a vital part of the real estate market.
Factors to Consider for Office REITs
When looking at office REITs, keep these points in mind:
- The economy’s health affects office space demand and tenant payments.
- Check vacancy rates to see if there’s enough demand for office space.
- Office REITs with properties in various economic centers are more stable.
- Being able to get financing is crucial for growth and success.
REITs in strong economic areas with diverse, quality office properties do well. They can handle economic ups and downs and find new opportunities in the REIT industry.
“Investing in office REITs can provide investors with exposure to a critical sector of the real estate market, offering the potential for steady income and long-term appreciation.”
Best Real Estate Investment Trust Sectors
Mortgage REITs
Mortgage REITs focus on real estate debt, not the properties themselves. They make money by holding mortgages and securities backed by mortgages. These REITs can offer high dividends but are sensitive to interest rates. This can affect their debt’s value and financing costs.
When looking at mortgage REITs, consider their leverage, portfolio composition, and how they handle interest rate risks. This helps investors understand the risks and rewards of these REITs.
The success of mortgage REITs depends on many things, like the REIT industry performance and the state of mortgage REIT sectors. Keeping an eye on these can help investors make better choices for their REIT investment strategies.
“REITs, due to regulatory requirements, must pay out at least 90% of their net income as dividend payments to their unitholders.”
This rule makes mortgage REITs great for those looking for steady dividends. But, it’s key to know the risks too before investing.
By looking into mortgage REITs and matching them with their financial goals, investors can see the good and bad sides of this REIT type. This can help make a diverse investment portfolio.
Assessing REIT Financials
When looking at REIT financials, smart investors check out two key numbers: net asset value (NAV) and debt-to-equity (D/E) ratio. These numbers tell a lot about a REIT’s strength and financial health.
Evaluating Net Asset Value (NAV)
NAV is the total value of a REIT’s assets minus its liabilities. It shows the real value of the REIT’s real estate, not just the book value. A strong NAV means the REIT’s properties are in good shape and ready for growth.
Debt-to-Equity (D/E) Ratio
The REIT debt-to-equity ratio shows how much debt a REIT has compared to its equity. Lower ratios mean a stronger financial position. REITs with smart debt management can handle tough times and grab opportunities when the market is good.
Investors should look for REITs with a solid NAV and smart debt use. These things help a REIT do well and stay strong over time.
“Assessing a REIT’s financials, particularly its NAV and debt-to-equity ratio, is crucial for making informed investment decisions and identifying the most promising opportunities in the real estate market.”
| Metric | Description | Importance for REIT Investors |
|---|---|---|
| Net Asset Value (NAV) | Measures the total value of a REIT’s assets, less its liabilities. | Provides insight into the true worth of the REIT’s real estate portfolio, beyond the surface-level book value. |
| Debt-to-Equity (D/E) Ratio | Assesses the REIT’s leverage, with lower ratios indicating a stronger financial position. | Indicates the REIT’s ability to weather economic cycles and capitalize on opportunities. |
By focusing on these key REIT financials, investors can make better choices. They can find the best REIT investments in the market.
Advantages and Disadvantages of REIT Investing
Investing in real estate investment trusts (REITs) lets savvy investors tap into the commercial real estate market. They offer many benefits, like steady dividends, diversification, and big property ownership without the usual challenges. But, REIT investments also have their downsides that investors should think about.
Benefits of Investing in REITs
- Consistent dividend income: REITs must give out at least 90% of their taxable income as dividends. This means investors get a steady flow of REIT benefits.
- Diversification: REITs let you get into the real estate market without the trouble of owning property directly. This helps diversify your portfolio.
- Accessibility: Publicly traded REITs are easy to buy and sell, offering high liquidity.
- Fractional ownership: REITs make it possible to own parts of big commercial real estate, making it more accessible.
Drawbacks of REIT Investments
REITs have many benefits, but they also have some risks that investors should know:
- Interest rate sensitivity: Changes in interest rates can affect REIT share prices, especially if they have variable-rate debt.
- Volatility: REITs can swing more in value over short periods than the overall market. This is due to market trends, property types, and the economy.
- Illiquidity: Non-traded and private REITs might be hard to sell quickly, with higher fees and commissions.
- Tax implications: REIT dividends are taxed as ordinary income, which can lead to higher taxes.
When thinking about REIT investments, it’s important to weigh the pros and cons. This helps ensure they match your investment goals and how much risk you can handle.
“REITs have been popular for the past 25 years as a way for more investors to access the real estate market.”
Conclusion
Real estate investment trusts (REITs) can be a smart choice for investors. They offer a way to get into real estate, steady dividend income, and diversification. There are many types of REITs, including publicly traded, public non-traded, and private ones, each with its own pros and cons.
By learning about REIT sectors and their financials, investors can make smart choices. REITs can offer stable returns and help diversify an investment portfolio. This makes them a great option for those looking to invest in real estate.
Key REIT Investing Takeaways
- REITs offer an accessible way to invest in real estate, providing exposure to a range of property sectors.
- Publicly traded REITs, public non-traded REITs, and private REITs each have unique features and considerations for investors.
- Understanding REIT sectors, financials, and the advantages and disadvantages of REIT investing is crucial for making informed investment decisions.
- REITs can provide diversification benefits and the potential for steady dividend income within an investment portfolio.
- Investors should carefully evaluate the risks and potential rewards of REIT investing to determine if it aligns with their investment objectives and risk tolerance.
Adding REITs to an investment strategy can offer diverse opportunities and potential rewards. As the REIT market changes, staying informed and making well-researched decisions is key to success in REIT investing.
| Property Sector | Average Lease Duration | Stock Beta |
|---|---|---|
| Hotel | N/A | 0.99 (1-year), 0.98 (3-years) |
| Regional Mall | 0.86 (3-7 years) | 0.82 (3-7 years) |
| Industrial | 0.81 (3-7 years) | 0.83 (3-7 years) |
| Shopping Center | 0.76 (3-7 years) | 0.76 (3-7 years) |
| Office | 0.76 (3-7 years) | 0.78 (3-7 years) |
| Multi-Family | 0.73 (1 year) | 0.65 (3-years) |
| Self-Storage | 0.73 (monthly) | 0.75 (monthly) |
| Specialty | 0.72 (varies) | 0.86 (varies) |
| Other Retail (triple-net) | 0.66 (10+ years) | 0.67 (10+ years) |
| Health Care | 0.66 (10+ years) | 0.63 (10+ years) |
| Manufactured Home | 0.61 (monthly) | 0.63 (monthly) |
| Diversified | 0.58 (varies) | 0.66 (varies) |
| Grand Total | 0.74 (1-year) | 0.77 (3-years) |
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About 170 million Americans have their homes in REITs, and these companies own around $4.0 trillion in commercial real estate as of January 2024. Equity REITs are the most common type, focusing on owning real estate. Mortgage REITs focus on real estate mortgages or mortgage-backed securities. Publicly traded REITs are easy to buy and sell because they’re listed on stock exchanges. They have given similar long-term returns to other stocks.
If you want to diversify your portfolio, earn steady income, or grow your money in real estate, check out https://bykennethkeith.com/store/. It offers a wide range of REIT products and educational materials. These can help you make smart investment choices and reach your financial goals.