Best REITs – Real Estate Investing, Made Easy
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I don’t think I have the stomach to be a real estate investor. I don’t want to be a landlord, and even if I hired a rental property management company to oversee it, I’d still have to pay for repairs, insurance, taxes, and make a down payment.
I think investing in real estate investment trusts or REITs is an easier route. These companies own or finance real estate across various property types that generate income by leasing space and collecting rent.
They trade on the market like stocks that sell per share price and can pay a high dividend. They can also sit in tax-advantaged retirement accounts. The tax preference mandates that REITs deliver 90% of taxable income back to shareholders, creating more reliability for investors.
REITs can be bought individually, like individual company stock, or through a mutual fund or exchange-traded fund called an ETF, sometimes called a REIT index. All three of these are included in our list of the top REITs.
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Overview of the best REITs
REIT | Best for |
|---|---|
Brookfield Property Partners | Commercial property |
Ready Capital | Rising mortgage rates |
Sabra Health Care | Health care investing |
Stag Industrial | Industrial property |
Vornado Realty Trust | ‘Green’ sustainability investing |
Vanguard Real Estate ETF | Passive index ETF |
Farmland Partners | Farmland |
American Century Global Real Estate Fund | Global mutual fund |
Annaly Capital Management | Value investors |
Realty Income Corp. | Monthly dividends |
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Best REITs
Brookfield Property Partners
Brookfield Property Partners is an equity REIT, the most common real estate investment trust type. Equity REITs are real estate companies that own properties such as office buildings, apartment buildings, and retail spaces leased to tenants. Most of the rental income earned is paid as taxable income each year in dividends to shareholders.
Brookfield Property Partners has diversified global real estate holdings in what it says is in the world’s most dynamic markets. It owns offices, retail, multifamily, industrial, hospitality, student housing, and manufactured housing assets.
Its objective is to generate long-term returns of 12%-15%. According to NASDAQ, it has an annual dividend yield of 9.76% that outperforms the market and pays an annual dividend of $1.625. The average dividend yield for equity REITs is 4.3%, according to The Motley Fool.
- Price: $16.52
- Where to find: Brookfield Property Partners
Ready Capital
Ready Capital is a commercial mortgage REIT that acquires, originates, manages, and finances commercial real estate loans and related securities.
Mortgage REITs, also called mREITs, are similar to equity REITs because most investment returns come from dividends. Mortgage REITs generally perform better when interest rates are increasing because interest rates make up the income of mREITs.
The company makes it easy for prospective investors to become current through its dividend investment plan.
- Price: $13.14
- Where to find: Ready Capital
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Sabra Health Care REIT
Health care is often recession-proof and a reliable area to invest in, and Sabra Health Care REIT stands out among healthcare real estate investment trusts.
Sabra operates 450 specialty healthcare sites, skilled nursing centers, and senior housing facilities with 40,000 beds.
The REIT has a strong outlook for the future, which can be a good metric to weigh. Sabra’s forecast annual earnings growth rate of 101.95% is forecast to beat the healthcare facilities industry’s average forecast earnings growth rate of 41.35%. Sabra is also forecast to beat the U.S. market’s average forecast earnings growth rate of 15.45%.
- Price: $12.64
- Where to find: Sabra Health Care
Stag Industrial
Stag Industrial is a REIT focused on industrial properties — mostly logistics companies and manufacturers Stag signs as tenants to long-term leases. This can be risky when consumers and businesses are spending less in a down economy, but Stag tries to counteract that by renting entire buildings to single tenants for long leases.
Even if some big companies leave Stag’s leases, Stag has a diversified portfolio with 563 properties and 111.6 million square feet of rental space. It can be a good way not to limit your REIT investing to residential or commercial real estate but instead be invested in industrial real estate.
- Price: $32.50
- Where to find: Stag Industrial
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Vornado Realty Trust
Vornado Realty Trust takes a few routes toward diversification of its real estate portfolio. The National Association of Real Estate Investment Trusts, or NAREIT, has recognized Vornado as the highest-ranked diversified REIT.
Vornado focuses on high-end areas to gain stability that it wouldn’t have in less popular locations. It is mainly in top-tier markets such as Chicago, San Francisco, and New York City and includes retail buildings in Manhattan.
Vornado has a low-carbon approach to its real estate properties, such as by managing more than 27 million square feet of LEED-certified buildings and with some of its properties winning awards for “green” practices. More than 5 million square feet of Vornado office buildings were awarded the Energy Star label in 2022.
- Price: $24.94
- Where to find: Vornado Realty Trust
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Vanguard Real Estate ETF
Vanguard built its name on low-cost, passive index investing that tracks other indexes and buys some of what the other indexes buy. The Vanguard Real Estate ETF is an exchange-traded fund that is just one of the many REIT ETFs available in the real estate sector.
ETFs are already diversified for you, making them a passive form of investing. The Vanguard Real Estate ETF invests in stocks issued by other REITs. Its goal is to closely track the return of the MSCI US Investable Market Real Estate 25/50 Index. That index holds diversified U.S.-listed REITs, including in health care, hospitality, industrial, office, residential, and retail industries.
This Vanguard ETF has an annualized return of 7.9%. Its expense ratio is 0.12%, which is $12 for every $10,000 invested annually.
- Price: $84.87
- Where to find: Vanguard Real Estate
Farmland Partners
Farmland Partners is the top farmland REIT by U.S. acreage. This real estate company owns and seeks to acquire high-quality farmland throughout North America to meet the global demand for food, feed, fiber, and fuel.
It partners with farmers on more than 340 farms to help the farmers and the REIT increase profitability for both. Its portfolio includes 36 crops in 18 states. The REIT's website says that farmland is a rare sector that benefits from growing demand in the face of shrinking supply. Farmland is also a type of real estate with a 0% vacancy rate.
While its dividend yield is low at 1.71%, Farmland Partners has high returns in a bear market. It has a one-year return of 14.59%. It reported that it renewed about 60% of leases expiring in 2022 at an average rent increase of 15%
- Price: $13.67
- Where to find: Farmland Partners
American Century Global Real Estate Fund
The American Century Global Real Estate Fund is a mutual fund with 97% of its sector weighting in real estate. According to American Century Investments, it seeks global diversification and high total return potential.
The fund invests in REIT stocks and real estate companies worldwide, though 77% of its holdings are in North America. The Asia Pacific region is home to 17% of the fund’s holdings, and Europe holds 6%.
The company says the fund’s U.S. and non-U.S. REITs historically have had low correlations to the world’s stock and bond markets, giving the impression that financial troubles and volatility elsewhere can help REITs. The fund is listed as a retirement share class.
Morningstar gives it a five-star rating. It has a 1.11% net expense ratio, and the initial investment is $500, with automatic investments of at least $100 per month. Otherwise, the minimum initial investment is $2,500.
- Price: $11.49
- Where to find: American Century Global Real Estate
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Annaly Capital Management
One thing that quickly catches your eye about Annaly Capital Management is the 16.82% dividend yield. That’s the highest payout among the REITs we recommend.
Its high yield helps Annaly have a low price-to-earnings ratio, or P/E, of 2.68, showing that investors are paying less for each dollar of profit. This can make this REIT especially appealing to value investors.
If you want big, then Annaly is one of the largest mortgage real estate investment trusts with $78.2 billion in assets.
It borrows money, primarily through short-term repurchase agreements, and reinvests the proceeds in mortgage-backed securities, or MBS. These are collateralized by residential mortgages guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae.
Profits are generated from the difference between the interest earned on its assets and its borrowing costs. The REIT also invests in residential and commercial real estate and middle-market lending.
- Price: $20.93
- Where to find: Annaly Capital Management
Realty Income Corp.
Dividends are usually paid quarterly or annually, but Realty Income Corp. pays them monthly and has done so for 629 consecutive months, or almost every month since the REIT started in 1969. That’s a long track record on Wall Street. Its compound annual dividend growth rate has been 4.4% since its listing on NYSE in 1994.
As of September 2022, Realty Income’s monthly dividend was $0.7425 per share. That equals an annualized dividend of $2.976.
Its real estate portfolio comprises 11,733 properties in the U.S., Puerto Rico, the United Kingdom, and Spain. It makes long-term leases of commercial properties to tenants under NNN leases.
Also called a triple net lease, an NNN lease is a property agreement where the tenant or lessee promises to pay all the property expenses, including real estate taxes, building insurance and maintenance. The landlord usually pays these in commercial lease agreements. The tenant also pays rent and utilities. The rent is typically lower because of all of the extra expenses the tenant is responsible for.
Realty Income is one of the fastest-growing REITs, with revenue growth of 74.9% and earnings per share growth of 12.1%. Its dividend also rises regularly. In September 2022, the REIT announced the 100th consecutive quarterly dividend increase, with its monthly dividends paid per share increasing by 5.1%.
- Price: $64.08
- Where to find: Realty Income Corp.
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Summary of best REITs
REIT | Ticker | Focus | Price | Dividend Yield |
|---|---|---|---|---|
Brookfield Property | NASDAQ: Global Partners BPYPP | Portfolio | $16.52 | 9.84% |
Ready Capital | NYSE: RC | Mortgage investing | $13.14 | 12.79% |
Sabra Health Care | NASDAQ: SBRA | Health care | $12.64 | 9.49% |
Stag Industrial | NYSE: STAG | Industrial property | $32.50 | 4.49% |
Vornado Realty Trust | NYSE: VNO | Green investing | $24.94 | 8.50% |
Vanguard Real Estate ETF | NYSE: VNQ | Passive index ETF | $84.87 | 7.9% |
Farmland Partners | NYSE: FPI | Farmland | $13.67 | 1.76% |
American Century Global Real Estate | ARYVX | Global mutual fund | $11.49 | N/A |
Annaly Capital Management | NYSE: NLYX | Securities | $20.93 | 16.82% |
Realty Income | NYSE: O | Commercial property | $64.08 | 4.64% |
Note: Prices and dividend yield are from the close of business on Nov. 14, 2022.
FAQs
What kind of REITs are there?
REITs are classified as equity or mortgage REITs. Equity REITs mostly own and operate income-producing real estate. Mortgage REITs lend money to real estate owners and operators, or extend credit indirectly by acquiring loans or mortgage-backed securities.
How are REIT dividends treated for tax purposes?
Dividends are listed for tax purposes as ordinary income, capital gains and return of capital. Each may be taxed at a different rate.
Why were REITs created?
Congress created REITs in 1960 to make investments in large-scale, income-producing real estate accessible to average investors.
Why you should use REITs
One of the biggest selling points of real estate investment trusts is that they can pay high and regular dividends, just like some dividend stocks. They can be bought on the stock market and diversify a portfolio. REITs also offer liquidity so that you can buy and sell them at any time, like with stocks.
In a bear market, such as during much of the pandemic, REITs can still offer dividend growth.
They must pay 90% of their income back to investors, with only 10% of taxable income allowed to be reinvested into the REIT to buy new holdings.
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The bottom line
REITs are a good way to invest in real estate without the hassles of owning property yourself. REITs can fit the bill if you’re looking for steady dividend income with long-term capital appreciation.
They have a comparatively low correlation with other assets, which adds diversification to reduce overall portfolio risk and increase returns. For long-term and value investors, REITs can be a good way to invest in real estate.
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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