What Are REITs?
A REIT is a company that owns and operates income-producing real estate — apartments, offices, malls, data centers, cell towers, warehouses, hospitals, and more. By law, REITs must distribute at least 90% of their taxable income as dividends to shareholders.
This requirement makes REITs one of the highest-yielding asset classes, with average dividend yields of 3-8% — well above the S&P 500's ~1.5%.
Types of REITs
- Equity REITs: Own and operate properties. Revenue from rent. Most common type (~90% of REITs).
- Mortgage REITs (mREITs): Finance real estate by buying mortgages. Higher yields but more volatile.
- Hybrid REITs: Combination of equity and mortgage activities.
REIT Sectors
- Residential: Apartments, manufactured housing
- Commercial: Office buildings, retail/malls
- Industrial: Warehouses, distribution centers (booming with e-commerce)
- Healthcare: Hospitals, senior living, medical offices
- Data Centers: Server facilities (massive growth sector)
- Cell Towers: Infrastructure for wireless networks
- Self-Storage: Storage facilities
How to Invest in REITs
- REIT ETFs: VNQ (Vanguard Real Estate), SCHH (Schwab Real Estate) — instant diversification
- Individual REITs: Realty Income (O), Prologis (PLD), American Tower (AMT)
- REIT Mutual Funds: VGSLX (Vanguard Real Estate Index)