How to Invest in REIT Funds in 2025

Real estate has long been a staple for building wealth, but many investors are looking for ways to participate without the need to purchase physical property. Enter Real Estate Investment Trusts (REITs)—investment vehicles that make real estate accessible for anyone, regardless of their budget. As of early 2024, nearly 170 million Americans were involved in REITs, making them an increasingly popular option for diversifying portfolios. If you’re considering investing in REITs in 2025, here’s everything you need to know to get started.

What is a REIT?

A Real Estate Investment Trust (REIT) is a company that owns and typically manages income-producing real estate, such as office buildings, shopping malls, apartments, and healthcare facilities. REITs generate income for their investors by collecting rent from these properties or through mortgage interest payments. To qualify as a REIT, a company must:

• Invest at least 75% of its assets in real estate
• Earn 75% or more of its income from real estate-related activities
• Distribute at least 90% of its taxable income to shareholders as dividends

REITs offer a way to invest in real estate without having to buy, manage, or directly own properties. Investors essentially own a share of the REIT and are entitled to a portion of its earnings, typically paid out as dividends.

Trading REITs: Buying and Selling

You can buy and sell REITs in several ways, depending on the type of REIT you choose to invest in:

• Publicly Traded REITs: These REITs are listed on major stock exchanges and can be bought or sold like stocks. They’re highly liquid, meaning you can sell your shares at any time during market hours.
• Non-Traded Public REITs: These are also regulated by the SEC but are not traded on exchanges. They tend to have less liquidity, meaning it may be harder to sell your shares. Additionally, it may take longer to get an accurate valuation of your investment.
• Private REITs: These are not traded on public exchanges and are not regulated by the SEC, making them the most difficult to assess and the riskiest option. Private REITs typically have longer investment horizons and can tie up your money for extended periods.

Types of REITs

There are several types of REITs, each focusing on different sectors of the real estate market. Here’s a rundown of the most common:

• Retail REITs: These REITs invest in shopping centers, strip malls, and standalone retail spaces. The performance of retail REITs depends largely on the strength of the retail industry and the tenant mix in the properties they own.
• Residential REITs: These REITs focus on multi-family housing, including apartment buildings and rental properties. They perform best in areas with a high demand for rental housing, particularly where homeownership is unaffordable.
• Healthcare REITs: Investing in healthcare facilities such as hospitals, nursing homes, and medical offices. While this can be a lucrative sector, it’s also subject to regulatory changes and shifts in healthcare demand.
• Office REITs: These REITs focus on office buildings. They earn income from tenants renting office space. The performance of office REITs is often influenced by economic conditions, like employment rates and business growth.
• Mortgage REITs: Instead of owning physical properties, mortgage REITs provide loans to real estate developers or investors. Investors in these REITs earn income from the interest on the loans they provide.
• Equity REITs: These are the most common type, investing directly in real estate properties, such as apartments, shopping centers, and industrial buildings. They generate income from rent, which is passed along to investors in the form of dividends.
• Hybrid REITs: These REITs invest in both real estate equity and mortgages, providing a way to diversify your investment between property ownership and lending.

Making Money with REITs

Investing in REITs is designed to provide you with returns through dividends, which are typically paid out from rental income or mortgage interest. Most REITs distribute their earnings on a regular basis—either monthly, quarterly, or annually. You can choose to receive these dividends as cash or reinvest them for compounded growth. Additionally, if the REIT’s property value appreciates, shareholders can earn money when the properties are sold for a profit.

How to Choose the Right REIT

When choosing a REIT to invest in, there are several factors to consider:

• Investment Goals: Do you want regular income, capital appreciation, or a combination of both? Some REITs are better suited for consistent dividend income, while others focus on long-term property value growth.
• REIT Performance: Research the company’s track record, including its historical performance, dividend history, and growth metrics. Be sure the REIT has a strong management team and a good reputation.
• Liquidity: Consider how easily you can sell your shares. Publicly traded REITs offer greater liquidity, while non-traded and private REITs may lock up your money for several years.

Benefits of Investing in REITs

• Lower Capital Requirement: You can invest in real estate with much less capital than it would take to purchase property outright.
• Regular Dividends: REITs are required to distribute 90% of their taxable income as dividends, which often leads to consistent payouts.
• Diversification: REITs allow you to diversify your investment portfolio by adding real estate assets without having to deal with the complexities of direct property ownership.
• Capital Appreciation: As properties increase in value, your investment can appreciate, providing both income and potential for capital gains.

Drawbacks of Investing in REITs

• Tax Liabilities: Dividends from REITs are taxed as ordinary income, which could result in higher tax rates for some investors.
• Market Volatility: REITs can be affected by market conditions, interest rate changes, and the health of the real estate sector, making them more volatile than other investments.
• Liquidity Issues: Non-traded and private REITs can be harder to sell and may tie up your investment for years.

Risks vs. Rewards

Investing in REITs offers high potential returns, including dividends and capital gains. However, the risks should not be ignored. Market volatility, interest rate fluctuations, and the possibility of poor property management can all negatively impact returns. A diversified approach that includes a mix of property sectors and types of REITs can help mitigate some of these risks.

Final Thoughts

REITs are an excellent way to invest in real estate without the need to own physical properties. They provide exposure to a variety of real estate sectors, generate regular income, and offer significant diversification benefits. As with any investment, it’s important to do your research, understand your financial goals, and choose the right type of REIT for your needs. By carefully evaluating the different options and weighing the risks and rewards, you can successfully integrate REITs into your investment strategy in 2025.