fbpx

How to Invest in REITs

Benzinga Money is a reader-supported publication. We may earn a commission when you click on links in this article. Learn more.

REITs offer investors a simple and accessible way to put their money into the real estate market without becoming a landlord or investing tens of thousands of dollars at once. Thankfully, buying REITs is just as easy as buying stocks. We’ll go over how to buy REITs, some of the REIT fees you might pay and the pros and cons you’ll need to consider before you buy.

Investing in REITs Step by Step

Investing in REITs is just as easy as investing in the stock market. Let’s take a look at how you can start your investment journey today. 

Step 1: Research REITs.

You shouldn’t invest in the first REIT you see on your trading app. Research REITs that buy property in the area you’re most interested in. Compare sectors, price, dividend data, dividend yield and analysts ratings before you decide which REIT to buy. Remember that if you buy a non-publicly traded REIT, you might need to pay REIT fees to the management team. There are also several types of REITs to consider:

Equity REITs

An equity REIT is the most common type of REIT and operates by purchasing properties and renting or leasing them to 3rd parties. The REIT is responsible for maintaining and managing these properties. If you see the phrase “REIT” listed anywhere, the writer is typically referring to an equity REIT unless otherwise specified.

Mortgage REITs

Mortgage REITs operate by issuing funding for mortgages to income-producing properties. They then collect and pay out dividends originating from the interest these mortgages generate.

Private REITs

Private REITs are not listed on public exchanges and are exempt from SEC registration. You’ll need special access to invest in this type of REIT.

Some Private REITs we consider excellent include:

Step 2: Place an Order Through Your Broker.

Buying publicly-traded REITs is just like buying a share of stock. Log into your brokerage account, search for the REIT you want to buy by symbol and place a buy order. When someone is selling a share of the REIT you want at the price you’ve specified, you’ll see it in your account. Never purchased a share of stock before? Before you buy your first stock, you’ll need to open a brokerage account. Luckily, it’s never been easier to open a brokerage account online. Here are some of our favorite brokers:

TradeStation
Commissions
$0
Account Min
$0
Get started securely through TradeStation’s website
Commissions
$0
Account Min
$0
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
TD Ameritrade
Commissions
$0 $6.95 for OTC Stocks
Account Min
$0
Get started securely through TD Ameritrade’s website
Commissions
$0 $6.95 for OTC Stocks
Account Min
$0
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Commissions
$0
Account Min
$0
Compare Brokers securely through eTrade’s website
Commissions
$0
Account Min
$0
1 Minute Review

E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.

Best For
  • Active traders
  • Derivatives traders
  • Retirement savers
Pros
  • Sophisticated trading platforms
  • Wide range of tradable assets
  • Exceptional customer service
Cons
  • Limited currency trading
  • Higher margin rates than competitors
  • No paper trading on its standard platform

Step 3: Monitor Your Investment.

Just like any other stock, your REIT will rise and fall in value. You can monitor your progress and portfolio growth on your brokerage account. When you receive a dividend, you’ll see it as a pending deposit in your account. 

What is a REIT Exactly?

For those who know the term but don’t know what a REIT really is, a real estate investment trust (REIT) is a company that owns, maintains and manages income-producing properties. Most REITs operate in a very simple way: they use your money to purchase commercial or residential space, rent that space out to tenants and distribute the income to shareholders. There are different types of REITs, and individual REITs may choose to specialize in certain markets. For example, Universal Health Realty (UHT) is a REIT that leases medical facilities, while Simon Property Group (SPG) is a REIT that leases commercial shopping spaces. 

If you own shares of a REIT, you’ll usually receive your money in the form of a dividend. A dividend is a portion of profits that the company pays out to shareholders. Each share of stock in a REIT entitles you to a particular dividend based on the company’s income. For example, if you own 1,000 shares of a REIT that pays out 50 cents in a dividend each quarter, you’ll receive a total of $500 per business quarter. Most REITs pay out dividends every quarter, but some pay out annually or monthly. You’ll see your dividends in your brokerage account as they’re issued. 

REITs are unique because they’re one of the only types of companies required to pay dividends to its shareholders. Under most corporate classifications, a company can decide when and if it will pay dividends. However, to maintain its classification as a REIT, a company is legally required to pay out at least 90% of its taxable income to shareholders in the form of dividends.

Most REITs aim for 95% or even 100% total payouts. This can make REITs an excellent choice for long-term investors who want to build a passive income stream.  How much do REITs pay in dividends? The answer will depend on the specific REIT that you invest in. You can use the SEC’s EDGAR database to research companies before you invest in them. 

What Are the Pros and Cons of Investing in REITs?

Let’s take a look at a few of the pros and cons that come with investing in REITs. 

ProsCons
Higher dividends: REITs are required by law to pay out at least 90% of their taxable income in dividends. This means more profit for you as the shareholder.

Easy purchase process: Interested in investing in real estate but don’t have the time, down payment or credit score to buy a rental property? REITs give you an easier way to invest. 

Access to more types of property investment: Unless you have a few hundred thousand dollars lying around, you can’t invest in a commercial property or a medical care facility on your own. REITs pool your funds together with other investors, allowing you to invest in more types of properties.
Higher taxes: REITs usually pay out higher dividends than competing stocks. While this can be great for your wallet in the short-term, REIT dividends aren’t taxed at the lower qualified dividend rate that most stock dividends are. This means you’ll need to put away more money for taxes. 

Long-term investments: If you’re looking for a way to mask fast cash, REITs might not be for you. It can take years to recoup your investment through dividends, even if your REIT of choice is relatively affordable. 

Investing the Right Way

It’s important to remember that the dividends you earn from your investment in a REIT are taxable income. When you receive a dividend, you’ll want to set aside a percentage of your earnings for future tax considerations. Keeping careful records of received payments can help you avoid fraud and accidental financial malfeasance.

Benzinga's #1 Breakout Stock Every Month

Looking for stocks that are about to breakout for gains of 10%, 15%, even 20% potentially or more? The only problem is finding these stocks takes hours per day. Fortunately, Benzinga's Breakout Opportunity Newsletter that could potentially break out each and every month. You can today with this special offer:

Click here to get our #1 breakout stock every month.

Hire a Pro: Compare Financial Advisors In Your Area

Compare Online Brokers
Broker Commission Account Min Get Started

$0 $0 Learn More

$0 $6.95 for OTC Stocks $0 Learn More

$0 $0 Learn More

FREE $0 Learn More

$0 $0 Learn More