Contributor, Benzinga
Updated: November 28, 2022

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While Equity REITs own and manage real estate properties to generate rental income, Mortgage REITs (mREITs) invest in and own mortgage loans. They provide the financing for real estate and in turn generate income from the interest.

What is a Mortgage REIT?

Mortgage REITs simply originate or purchase mortgage and mortgage backed securities (MBS). They then earn money from the interest on those mortgages. These investments can have tremendous profits. Mortgage REITs may invest in:

  • Commercial Mortgages and Mortgage-Backed Securities
  • Residential Mortgages and Mortgage-Backed Securities
  • Both Commercial and Residential Mortgages and Mortgage-Backed Securities.

While both residential mortgage REITs and commercial mortgage REITs earn the majority of their income through interest payments on the debt they own, a lot of mREITs also own income-producing real estate.

Like all REITs, mortgage REITs have to follow strict guidelines set by the Internal Revenue Service (IRS) to maintain their status as a REIT. This means they're required to pay out at least 90% of their taxable income to shareholders in the form of dividends.

Benefits of mREITs

Investing in mortgages grants investors the ability to diversify their real estate investments without having to actually own property. This is seen as a benefit by many REIT investors.

Mortgage securities are also a much more liquid asset. This is especially true with agency mortgage backed securities, which are considered one of the lowest risk investments. Agency MBS are guaranteed by the federal government, so they are easy to leverage and easy to sell on the mortgage market.

One of the greatest benefits to investing in a mortgage REIT is that mortgage REIT stocks typically pay a higher dividend compared to an equity REIT. Mortgage REITs typically have a dividend yield of at least 6%, but sometimes reach higher than 10%.

Mortgage REITs help to finance millions of residential homes, which is important for the economy. Facilitating the housing market has great effects on the economy. Investing in the buying and selling of commercial income-producing real estate is helpful too - and has a lot of long term potential.

Risks for mREITs

Interest rate risk: Interest rates are always a known risk with any REITs. Rising interest rates can cause REITs to lose value. Since mortgage REITs use short-term debt to purchase the mortage securities they invest in, rising interest rates can squeeze their margins. On the other hand, mortgage REITs can even be affected by interest rates falling, since prepaid mortgages and refinancing are more doable with low interest rates. This limits potential earnings for shareholders.

Mortgage defaults: Another risk to keep in mind is defaulting on mortgages. When borrowers do not pay their mortgage, there is no money to gain from the interest. Investors can lose money when they invest in mortgages that are not backed by a federal agency.

Mortgage REITs are a great investment if you are looking to make money in real estate without having to actually own any property. Profiting from mortgages and mortgage-backed securities has proven to be successful in generating interest income, with immense opportunities.

Best Mortgage REITs

If you're ready to start investing in mREITs, these 3 mortgage REIT stocks offer significant return potential to investors through their high quarterly dividend payments.

TickerCompany±%PriceInvest

Mortgage REIT ETFs

Another option for investing in mREITs is to invest in an ETF that invests in mortgage REIT stocks. Investing in an mREIT ETF is an easy way to invest in this industry while allowing a professional fund manager to choose which mortgage REITs to invest in, the right time to buy, and when to sell.

Below are 3 mortgage REIT ETFs worth looking at:

TickerCompany±%PriceInvest

Industry Overview

Number of REITs41
Average Dividend Yield13.41%
YTD Total Return-27.49%
October Total Return12.23%
2021 Total Return15.64%

Quarterly Data

Financial MetricQ2 20222020
Dividends Paid ($M)$1,950$3,919

REIT Alternatives

REITs provide a low-cost and simple way to invest in real estate. However, they aren't the only option available to generate passive income through real estate with a low minimum investment.

Real estate crowdfunding offers investors the ability to decide which properties they want to invest while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms.

All Mortgage REITs

TickerCompanyMarket Cap (M)Dividend Yield
NLYAnnaly Capital Management Inc$9,848.5716.00%
STWDStarwood Property Trust Inc$6,541.519.00%
AGNCAGNC Investment Corp$5,579.0314.00%
NRZNew Residential Investment Corp$128.429.00%
BXMTBlackstone Mortgage Trust Inc.$4,222.9110.00%
HASIHannon Armstrong Sustainable Infrastructure Capital$2,684.715.00%
CMTGClaros Mortgage Trust, Inc.$2,416.056.00%
ABRArbor Realty Trust Inc$2,502.5310.00%
ARIApollo Commercial Real Estate Finance$1,687.1511.00%
CIMChimera Investment Corp$1,511.0417.00%
RCReady Capital Corp$1,442.1912.00%
TWOTwo Harbors Investment Corp$1,388.9016.00%
LADRLadder Capital Corp Class A$1,392.218.00%
PMTPennyMac Mortgage Investment Trust$1,328.5912.00%
KREFKKR Real Estate Finance Inc Trust$1,132.4710.00%
MFAMFA Financial, Inc.$1,103.4815.00%
NYMTNew York Mortgage Trust Inc$1,009.2914.00%
STARiStar Inc.$960.275.00%
RWTRedwood Trust Inc.$860.3211.00%
EFCEllington Financial$831.6412.00%
ARRArmour Residential REIT Inc$767.7319.00%
ACREAres Commercial Real Estate Corp$676.1810.00%
DXDynex Capital Inc.$592.3511.00%
BRMKBroadmark Realty Capital Inc.$538.3319.00%
TRTXTPG RE Finance Trust$558.8813.00%
IVRInvesco Mortgage Capital$456.0423.00%
ORCOrchid Island Capital Inc$359.9629.00%
GPMTGranite Point Mortgage Trust Inc.$329.2916.00%
NREFNexPoint Real Estate Finance, Inc.$275.7810.00%
REFIChicago Atlantic Real Estate Finance, Inc.$279.7010.00%
AOMRAngel Oak Mortgage, Inc.$188.9319.00%
AJXGreat Ajax Corp$177.4213.00%
SACHSachem Capital Corp.$143.6014.00%
CHMICherry Hill Mortgage Investment Corporation$124.4617.00%
MITTAG Mortgage Investment Trust, Inc.$125.5314.00%
LFTLument Finance Trust, Inc.$102.3713.00%
EARNEllington Residential Mortgage REIT$96.2914.00%
ACRACRES Commercial Realty Corp.$87.280.00%
AAICArlington Asset Investment Corp Class A$86.800.00%
LOANManhattan Bridge Capital, Inc$65.299.00%
WMCWestern Asset Mortgage Capital$53.2620.00%

Continue reading: BEST MORTGAGE REITS TO BUY IN JULY