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How to Invest in REITs: My Honest Take After Years of Trial and Error

Here’s a stat that blew my mind when I first stumbled across it — REITs have delivered an average annual return of roughly 11.4% over the past 45 years, according to Nareit. That’s actually outperformed the S&P 500 in several stretches. And yet, so many people I talk to have never even heard of them!

I remember sitting at my kitchen table back in 2017, scrolling through investing forums, feeling totally overwhelmed. I wanted real estate exposure in my portfolio but I didn’t have the cash — or honestly the guts — to buy a rental property. That’s when I discovered you could invest in REITs, and it kinda changed everything for me.

So let me walk you through what I’ve learned. The wins, the facepalms, all of it.

What Even Is a REIT?

A Real Estate Investment Trust, or REIT, is basically a company that owns, operates, or finances income-producing real estate. Think shopping malls, apartment complexes, hospitals, data centers — the works. They’re required by law to distribute at least 90% of their taxable income as dividends to shareholders, which is why the dividend yields can be so juicy.

What I love about them is you don’t have to deal with tenants calling you at 2 AM about a busted pipe. You just buy shares — sometimes for as little as $10 — and you’re essentially a part-owner of real estate. It’s passive income without the landlord headaches, and that was a huge selling point for me.

The Different Flavors of REITs

Not all REITs are created equal, and I learned this the hard way. There’s three main types you should know about:

  • Equity REITs — These own and manage properties. They make money from rent. This is where most beginners start, and honestly where I’d recommend you start too.
  • Mortgage REITs (mREITs) — These don’t own properties. Instead, they finance real estate by purchasing or originating mortgages. The yields look incredible on paper, but they are way more volatile. I got burned a little here early on.
  • Hybrid REITs — A mix of both. Less common, but they exist.

I once threw money into a mortgage REIT because the 12% dividend yield made my eyes go wide. Then interest rates shifted and the share price dropped like a rock. Lesson learned — always look beyond the yield.

How I Actually Started Investing in REITs

My first REIT investment was through a brokerage account on Fidelity. I bought shares of a well-known equity REIT that focused on residential apartments. Nothing fancy, nothing clever — just a solid company with a long track record of paying dividends.

You can also invest in REITs through REIT ETFs and mutual funds, which is what I eventually shifted toward. Something like the Vanguard Real Estate ETF (VNQ) gives you instant diversification across dozens of real estate companies. It felt safer than picking individual REITs, especially when I was still figuring things out.

Another route that’s gotten popular is investing through platforms like Fundrise, which offers access to private, non-traded REITs. I’ve dabbled here too. The returns have been decent, but your money is less liquid — you can’t just sell whenever you want like with publicly traded REITs.

Mistakes I Made So You Don’t Have To

Oh man, where do I start. First, I chased high dividend yields without looking at the payout ratio or the company’s debt levels. That mortgage REIT situation I mentioned? Yeah, that stung. Always check the fundamentals.

Second, I didn’t consider the tax implications. REIT dividends are generally taxed as ordinary income, not at the lower qualified dividend rate. Holding them in a tax-advantaged account like a Roth IRA can save you a bunch. I wish someone had told me that from day one.

Third — and this sounds silly — I panicked during COVID when commercial real estate REITs tanked. I sold some positions at a loss. Those same REITs recovered beautifully within 18 months. Patience is everything in this game.

Your Next Move

Look, investing in REITs isn’t a magic bullet, but it’s a genuinely powerful way to build passive income and diversify your portfolio beyond just stocks and bonds. Start small, do your homework on the different REIT sectors, and for the love of your future self, consider the tax angle before you dive in.

Every investor’s situation is different, so tailor this stuff to your own financial goals and risk tolerance. And if you’re hungry for more practical money tips — no fluff, just real talk — come hang out with us at Money Mythos. We’ve got plenty more where this came from.