Yes, REITs are good for diversification because they provide exposure to real estate—a different asset class from stocks and bonds—helping to reduce overall portfolio risk and improve returns.
Real Estate Investment Trusts (REITs) offer investors a way to earn passive income through property ownership without the hassle of managing real estate directly. Among them, diversified REITs stand out for their ability to spread risk across multiple property types—such as residential, commercial, industrial, and retail—within a single portfolio.
This mix not only provides more stability in changing market conditions but also allows investors to benefit from multiple real estate sectors at once. In this article, we’ll explore some of the best diversified REITs and what makes them attractive investment options.
Table of Contents
What Are Diversified REITs?
Diversified REITs invest in various types of real estate, including residential and commercial, making them one of the most diversified real estate portfolios. Diversified REITs focusing on only commercial properties generally invest in office buildings, hotels and resorts, and industrial and retail properties. Most diversified REITs have a specific investment strategy and focus on a handful of property types rather than investing in all types of residential and commercial real estate.
Benefits of Diversified REITs
- Potential for Higher Returns: By pooling investor funds and spreading investments across multiple properties and sectors, diversified REITs can provide investors with access to a broad range of real estate assets without the need for significant capital outlay.
- Liquidity: Investing in diversified REITs also offers investors the benefit of liquidity, as shares of diversified REITs are traded on public stock exchanges, providing investors with the flexibility to buy and sell their investments easily. This liquidity can be especially appealing to investors who value the ability to quickly access their funds when needed.
- Low Risk: Diversified REITs offer investors a way to mitigate risk by spreading exposure across various types of properties such as residential, commercial, industrial, and retail real estate. This diversification helps protect investors from the impact of downturns in specific real estate sectors or geographical regions, reducing the overall volatility of their investment portfolio.
- Steady Income Stream: Even if one sector underperforms, diversified REITs have a steady source of income from other real estate investments. They are relatively recession-proof, making them ideal investment options during a market downturn.
Risks of Diversified REITs
- Impact of Economic Downturns: Diversified REITs are susceptible to economic cycles, and when the economy experiences a downturn, the demand for properties may decrease, leading to lower occupancy rates and reduced rental income. This can ultimately affect the overall performance and profitability of the REIT, causing a decline in share prices.
- Sensitive to Interest Rate Changes: When interest rates rise, the cost of borrowing for REITs increases, which can lead to higher expenses and lower profitability. Rising interest rates may also make other fixed-income investments more attractive, causing investors to pull out their money from REITs, thereby negatively impacting their share prices.
- Impact of Market Fluctuations: Market fluctuations can affect the value of the underlying properties in the REIT's portfolio, impacting the overall performance of the trust.
How to Invest in Diversified REITs
Most diversified REITs are publicly traded and listed on U.S. stock exchanges. Investors can buy and sell units of listed REITs during stock market hours from 9.30 a.m. to 4 p.m. Eastern Standard Time (EST). Some of the best online stock brokers through which diversified REITs can be traded are:
- Best For:Active and Global TradersVIEW PROS & CONS:Securely through Interactive Brokers’ website
Best Diversified REITs
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| SVC | Service Properties Trust | 0.45% | $2.22 | Buy stock | ||
| JBGS | JBG SMITH Properties | 0.36% | $16.56 | Buy stock | ||
| WPC | W.P. Carey | 1% | $61.86 | Buy stock | ||
Service Properties Trust (NASDAQ: SVC)
Service Properties Trust (NASDAQ: SVC) specializes in owning and managing a diverse portfolio of service-focused properties across the United States. These properties include hotels, net lease service retail properties, and travel centers. SVC's strategy is to invest in high-quality properties that are integral to the daily needs of consumers and businesses, thereby generating consistent cash flow and long-term value for shareholders.
JBG SMITH Properties (NYSE: JBGS)
JBG SMITH Properties (NYSE: JBGS) specializes in the development, ownership, and management of commercial, residential, and mixed-use properties in the Washington D.C. metropolitan area. From luxury high-rise apartments to modern office spaces and bustling retail centers, JBG SMITH properties are designed with a keen eye for detail and a deep understanding of urban planning principles.
The company's projects often incorporate green building practices, energy-efficient technologies, and thoughtful design elements that contribute to the overall quality of life in the communities they serve.
W.P. Carey Inc. (NYSE: WPC)
W.P. Carey Inc. (NYSE: WPC) specializes in providing long-term, sale-leaseback, and build-to-suit financing solutions for companies around the world. With a diverse portfolio of properties spanning industries such as industrial, warehouse, office, retail, and self-storage, W.P. Carey Inc. offers investors a stable and reliable income stream derived from long-term lease agreements with high-quality tenants.
One of the key strengths of W.P. Carey Inc. is its commitment to maintaining a strong and resilient portfolio through careful tenant selection and geographic diversification. By partnering with established companies with strong credit profiles, W.P. Carey Inc. minimizes the risk of lease defaults and ensures consistent cash flows for its investors.
Industry Overview
| Number of REITs | 12 |
| Average Dividend Yield | 6.42% |
| YTD Total Return | 10.51% |
| February Total Return | 9.60% |
| 2024 Total Return | -10.01% |
Quarterly Performance Data
| Financial Metric | Q4 2024 | 2024 YTD |
| FFO ($M) | $521 | $2,220 |
| NOI ($M) | $1,119 | $4,481 |
| Dividends Paid ($M) | $467 | $2,242 |
| Same Store NOI | 1.3% | - |
Invest in Diversified REITs to Maximize Returns
By investing in diversified REITs, individuals can benefit from diversification across various real estate sectors, and this diversification helps spread risk and can potentially reduce the impact of market fluctuations on an investor's portfolio.
It's important for investors to conduct thorough research before investing in diversified REITs to understand the specific properties and sectors included in the REIT's portfolio, as well as the management team's track record and strategy. Investors should also consider factors such as interest rate environments, economic conditions, and industry trends when making investment decisions in diversified REITs.
Meanwhile, let's take a look at all the existing diversified REITs.
All Diversified REITs
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| – % | $ – | Buy stock | ||||
| ALEX | Alexander & Baldwin | -0.45% | $17.60 | Buy stock | ||
| AHH | Armada Hoffler Properties | 1.09% | $7.39 | Buy stock | ||
| BNL | Broadstone Net Lease | 0% | $16.15 | Buy stock | ||
| – % | $ – | Buy stock | ||||
| GNL | Global Net Lease | 0% | $7.98 | Buy stock | ||
| JBGS | JBG SMITH Properties | 0.36% | $16.56 | Buy stock | ||
| WPC | W.P. Carey | 1% | $61.86 | Buy stock | ||
| KW | Kennedy-Wilson Holdings | 9.3% | $7.00 | Buy stock | ||
| ALX | Alexander's | 0.67% | $222.17 | Buy stock | ||
| O | Realty Income | 1.3% | $56.12 | Buy stock | ||
| OLP | One Liberty Properties | 0.86% | $24.49 | Buy stock | ||
| MDRR | Medalist Diversified REIT | 6.38% | $12.50 | Buy stock | ||
| AAT | American Assets Trust | 1.48% | $19.94 | Buy stock | ||
| BX | Blackstone | -1.27% | $144.88 | Buy stock | ||
| FREVS | First REIT of New Jersey | 0% | $15.65 | Buy stock | ||
| VNO | Vornado Realty | 0.43% | $39.63 | Buy stock | ||
| GOOD | Gladstone Commercial | -0.35% | $14.20 | Buy stock | ||
| MDV | Modiv Industrial | -0.48% | $14.66 | Buy stock | ||
Frequently Asked Questions
Are REITs good for diversification?
Which REIT has the best returns?
The REIT with the best returns can vary over time, but historically, Prologis (PLD) and American Tower (AMT) have delivered strong long-term performance. Always check current data and market trends before investing.
What is a disadvantage of REITs?
A key disadvantage of REITs is that they must distribute at least 90% of their taxable income as dividends, which can limit their ability to reinvest in growth and may result in higher tax liability for investors.
