If you’ve ever wanted to invest in real estate but didn’t want the hassle of buying properties, managing tenants, or fixing leaky faucets, Real Estate Investment Trusts (REITs) may be the answer. A REIT is a company that owns, operates, or finances income-producing real estate across a range of sectors, from office buildings and apartments to data centers and cell towers.
The appeal is straightforward: REITs let you buy shares of real estate the same way you would buy shares of Apple or Microsoft. You gain exposure to property markets without the headaches of direct ownership. Even better, REITs are legally required to pay out at least 90% of their taxable income as dividends to shareholders, which makes them one of the most reliable sources of income in the stock market.
For long-term investors, REITs can serve two purposes: steady dividend income and the potential for capital appreciation as property values and rents grow over time. They also offer diversification, since real estate doesn’t always move in sync with tech or financial stocks. That’s why many retirement accounts, income portfolios, and institutional funds allocate a meaningful chunk of capital to REITs.
Step 1: Understanding the Different Types of REITs
Value REIT stocks in less than 60 seconds with TIKR’s new Valuation Model (It’s free) >>>
Before investing, it helps to know the landscape. REITs come in several flavors, each tied to different parts of the economy:
- Equity REITs: The most common type is those that own and operate properties such as apartment complexes, shopping centers, office buildings, or warehouses. Their revenue comes mainly from rent, which tends to be stable and predictable. Because of this, equity REITs are often considered the best entry point for beginners looking for steady dividend income.
- Mortgage REITs (mREITs): These don’t own buildings; instead, they invest in mortgages or mortgage-backed securities. They can offer higher yields but also carry higher interest rate risk since their performance is tied to borrowing costs. Investors who choose mREITs need to be comfortable with interest rate cycles, as changes in rates can significantly affect returns.
- Specialized REITs: These focus on niche sectors like healthcare facilities, data centers, or cell towers. Specialized REITs are tied to long-term economic shifts like aging demographics or digital transformation. They often come with more growth potential but can also be more sensitive to sector-specific risks.
For beginners, equity REITs are usually the most straightforward starting point, since they tie directly to property income.
Step 2: Why REITs Are Attractive to Investors
The draw of REITs is simple: income, diversification, and growth.
- Income: By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends. This requirement, known as the 90% rule, means investors receive a much larger share of profits as dividends compared to most companies in the S&P 500. As a result, REITs typically yield above-average dividends, making them especially attractive for retirees or anyone seeking regular cash flow. Over time, reinvested dividends can compound returns significantly, creating wealth even without additional contributions.
- Diversification: Real estate often performs differently from equities and bonds, giving portfolios more balance. In times of stock market stress, certain types of REITs (like storage or healthcare) can hold up better, providing stability when it’s needed most.
- Growth Potential: Over time, REITs can grow alongside the broader economy, raising rents, expanding property portfolios, and benefiting from rising real estate values. Unlike physical property, these growth benefits are accessible to anyone who can buy a share of stock.
They’re also liquid, so you can buy or sell REIT shares through your brokerage account just like any stock, unlike physical property, which is costly and time-consuming to buy or sell.
Quickly value any REIT stock with TIKR’s powerful new Valuation Model (It’s free!) >>>
Step 3: How to Get Started with REIT Investing
Purchasing shares of individual REITs gives you direct control over your portfolio and allows you to focus on sectors you believe have the best long-term potential. For instance:
- Public Storage (PSA): A leader in self-storage, a business that thrives even during recessions as people downsize or businesses seek affordable space. Its predictable cash flow makes it a defensive choice.
- Equinix (EQIX): A data center REIT powering cloud computing and AI workloads. Demand for secure, scalable data storage keeps rising, making this one of the most future-facing REITs.
- Prologis (PLD): Specializes in warehouses leased to giants like Amazon and FedEx. As e-commerce expands globally, logistics real estate becomes a structural growth story.
When choosing individual REITs, think about macro trends. Are people moving into urban apartments? Is demand for cloud storage exploding? Is retail under pressure from online shopping? Matching REIT exposure with long-term trends can be the difference between a dividend that grows and one that disappears.
Pro tip: Start with 1–3 names, become familiar with dividend and payout structures, and then consider diversifying into other REIT subsectors.
Step 4: Evaluating REITs (What to Look For)
When analyzing REITs, a few metrics matter more than traditional stock ratios:
- Funds From Operations (FFO): A measure of cash flow that’s more accurate for REITs than earnings per share. Look for REITs with consistent FFO growth, as this signals financial health and dividend sustainability.
- Dividend Yield & Growth: A high yield can be attractive, but it’s not the whole story. Sustainable REITs not only pay well but also raise dividends steadily, which signals management confidence and long-term profitability.
- Debt Levels: REITs often carry high debt because they own expensive properties. But manageable debt relative to assets and cash flow indicates a REIT can withstand downturns without cutting dividends.
- Sector Trends: Is the REIT in a growth area like data centers or logistics, or in a struggling one like office buildings? Following long-term secular growth themes gives you a tailwind, while declining sectors often act as headwinds.
These are the key filters professionals use before making REIT allocations, and they can help retail investors avoid common pitfalls.
Step 5: Using TIKR to Track and Research REITs
One of the simplest ways to stay organized is to use TIKR to build a watchlist of REITs you want to follow. Here’s how you can do it:
- Search for REITs: In TIKR’s search bar, type the company name or ticker (e.g., PLD for Prologis, EQIX for Equinix). TIKR’s database will pull up a full company page with financials, charts, and dividend history.
- Add to Watchlist: Once on the company’s page, click “Add to Watchlist”. You can create a watchlist called “REITs” to group them all together. This allows you to monitor several real estate names side by side.
- Set Up Alerts: Turn on price or news alerts so you’ll know when something important happens. Alerts help you avoid missing dividend announcements, earnings updates, or major property acquisitions.
- Track Dividends: Under “Financials,” check the dividend history and payout ratios to evaluate consistency. TIKR makes it easy to compare yields over time, helping you identify which REITs are steady performers versus those with more volatile payouts.
- Compare Valuations: Use TIKR’s valuation tools to compare yields, P/FFO ratios, and debt metrics across your watchlist. This makes it easier to spot undervalued REITs or avoid overpriced ones.
By creating a REIT-focused watchlist, you’ll have a dashboard of income opportunities you can monitor, compare, and act on without juggling multiple sources.
Building Wealth with REITs Over Time
Getting started with REITs doesn’t require advanced real estate knowledge. By focusing on the basics, steady income, strong balance sheets, and growth-oriented sectors, you can start small and scale your exposure over time. REITs can serve as the backbone of an income strategy or as a diversification play in a growth portfolio.
Tools like TIKR make the process even easier by consolidating research, dividend tracking, and valuation metrics into one place. Whether you’re adding one REIT for yield or building a watchlist of 10–15 across sectors, the combination of reliable income and long-term growth potential makes REITs an investment strategy worth considering for any portfolio.
Wall Street Analysts Are Bullish on These 5 Undervalued Compounders With Market-Beating Potential
TIKR just released a new free report on five compounders that appear undervalued, have beaten the market in the past, and could continue to outperform over the next 1-5 years based on analysts’ estimates.
Inside, you’ll get a breakdown of 5 high-quality businesses with:
- Strong revenue growth and durable competitive advantages
- Attractive valuations based on forward earnings and expected earnings growth
- Long-term upside potential backed by analyst forecasts and TIKR’s valuation models
These are the kinds of stocks that can deliver massive long-term returns, especially if you catch them while they’re still trading at a discount.
Whether you’re a long-term investor or just looking for great businesses trading below fair value, this report will help you zero in on high-upside opportunities.
Click here to sign up for TIKR and get our full report on 5 undervalued compounders completely free.
Looking for New Opportunities?
- See what stocks billionaire investors are buying so you can follow the smart money.
- Analyze stocks in as little as 5 minutes with TIKR’s all-in-one, easy-to-use platform.
- The more rocks you overturn… the more opportunities you’ll uncover. Search 100K+ global stocks, global top investor holdings, and more with TIKR.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
