Best-Performing REITs for November 2024: How to Invest in Real Estate Investment Trusts

What is a REIT?

Real estate investment trusts (REITs) are companies that own real estate. You can buy shares in REITs similar to stock, and you mainly make money from REITs through dividends. REITs often own apartments, warehouses, self-storage facilities, malls and hotels. You can purchase REITs through an investment account, also called a brokerage account, similar to stocks.

» Ready to invest? Compare the best online brokers

How do REITs work?

Congress created real estate investment trusts in 1960 as a way for individual investors to own equity stakes in large-scale real estate companies, just as they could own stakes in other businesses. This move made it easy for investors to buy and trade a diversified real-estate portfolio.

REITs are required to meet certain standards set by the IRS, including that they:

• Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs.

• Invest at least 75% of total assets in real estate or cash.

• Receive at least 75% of gross income from real estate, such as real property rents, interest on mortgages financing the real property or from sales of real estate.

• Have a minimum of 100 shareholders after the first year of existence.

• Have no more than 50% of shares held by five or fewer individuals during the last half of the taxable year.

By adhering to these rules, REITs don’t have to pay tax at the corporate level, which allows them to finance real estate more cheaply — and earn more profit to disburse to investors — than non-REIT companies can. This means that over time, REITs can grow bigger and pay out even larger dividends.

» Related: Understand different types of real estate investments

How much can I make with REITs?

When comparing potential returns it can be helpful to look at benchmarks. The S&P 500 is a collection of five hundred of the biggest U.S. companies. When you look at their collective performance, that's how the S&P 500 has performed. The FTSE NAREIT All Equity REITs Index, similarly, tracks the performance of equity REITs. And from 1972 to 2019, REITs, on average, returned an 11.8% total annual return compared to the S&P's 10.6%^[0]

That's not to say that REITs are better than stocks — it's simply one metric to look at. That being said, if you were to invest in REITs in addition to stocks, you would diversify your portfolio and likely be more protected against risk.

Best-performing REIT stocks: November 2024

Here are some of the top performing publicly listed REITs:

Rather than purchase individual REITs, you can also invest in REIT real estate ETFs to get instant diversification at an affordable price. Here are some top performing property-focused ETFs the past year:

Best-performing REIT ETFs: November 2024

Best-performing REIT mutual funds

Looking for mutual funds instead? Below are the five best-performing REIT mutual funds, filtered to only include no-load funds (meaning you won't pay a commission to buy or sell the fund) with investment minimums below $3,000 and expense ratios below 1%.

Source: Morningstar. Data is current as of market close Nov. 1, 2024, and is intended for informational purposes only.

3 types of REITs

REITs fall into three broad categories divided by their investment holdings: equity, mortgage and hybrid REITs. Each REIT type has different characteristics and risks, so it’s important to know what’s under the hood before you buy.

1. Equity REITs

Equity REITs operate like a landlord, and they handle all the management tasks you associate with owning a property. They own the underlying real estate, collect rent checks, provide upkeep and reinvest into the property.

2. Mortgage REITs

Unlike equity REITs, mortgage REITs (also known as mREITs) don't own the underlying property. Instead, they own debt securities backed by the property. For example, when a family takes out a mortgage on a house, this type of REIT might buy that mortgage from the original lender and collect the monthly payments over time, generating revenue through interest income. Meanwhile, someone else — the family, in this example — owns and operates the property.

Mortgage REITs are usually significantly more risky than their equity REIT cousins, and they tend to pay out higher dividends.

3. Hybrid REITs

Hybrid REITs are a combination of both equity and mortgage REITs. These businesses own and operate real estate properties as well as own commercial property mortgages in their portfolio. Be sure to read the REIT prospectus to understand its primary focus.

» Which is better? Real estate vs. stocks

Each REIT category can further be divided into three types that speak to how the investment can be purchased: publicly traded REITs, public non-traded REITs and private REITs.

Publicly-traded REITs

As the name suggests, publicly-traded REITs are traded on an exchange like stocks and ETFs, and are available for purchase using an ordinary brokerage account. There are more than 225 publicly-traded REITs on the market in the U.S^[0]

Publicly-traded REITs tend to have better governance standards and be more transparent. They also offer the most liquid stock, meaning investors can buy and sell the REIT’s stock readily — much faster, for example, than investing and selling a retail property yourself. For these reasons, many investors buy and sell only publicly-traded REITs.

Public non-traded REITs

These REITs are registered with the SEC but are not available on an exchange. Instead, they can be purchased from a broker that participates in public non-traded offerings, such as online real estate broker Fundrise. (Nareit maintains an online database where investors can search for REITs by listing status). Because they aren’t publicly traded, these REITs are highly illiquid, often for periods of eight years or more, according to the Financial Industry Regulatory Authority.

Non-traded REITs also can be hard to value. In fact, the SEC warns that these REITs often don’t estimate their value for investors until 18 months after their offering closes, which can be years after you’ve invested.

Several online trading platforms allow investors to purchase shares in public non-traded REITs, including DiversyFund and Realty Mogul.

Private REITs

Not only are private REITs unlisted, making them hard to value and trade, but they are also generally exempt from SEC registration: As such, private REITs have fewer disclosure requirements, potentially making their performance harder to evaluate. These limitations make these REITs less attractive to many investors, and they carry additional risks. (See this helpful warning from FINRA on public non-traded REITs and private REITs.)

Public non-traded REITs and private REITs also can have much higher account minimums — $25,000 or more — to begin trading, and steeper fees than publicly traded REITs. For that reason, private REITs and many non-traded REITs are open only to accredited investors classified by the SEC as qualified to invest in sophisticated types of securities. These investors have a net worth (excluding the value of their primary residence) of $1 million or more, or annual income in each of the past two years of at least $200,000 if single or $300,000 if married.

Nareit notes that during the 20-year period ending December 2019, the FTSE NAREIT All Equity REITs index — which collects data on all publicly traded equity REITs — outperformed the Russell 1000, a stock market index of large-cap stocks. The REIT indexed investments showed total returns of 11.6% annually versus the Russell 1000’s 6.29%.

REIT stock pros and cons

REIT pros explained

There are advantages to investing in REITs, especially those that are publicly traded:

Steady dividends: Because REITs are required to pay at least 90% of their annual income as shareholder dividends, they consistently offer some of the highest dividend yields in the stock market. That makes them a favorite among investors looking for a steady stream of income. The most reliable REITs have a track record of paying large and growing dividends for decades.

High returns: As noted above, returns from REITs can outperform equity indexes, which is another reason they are an attractive option for portfolio diversification.

Liquidity: Publicly traded REITs are far easier to buy and sell than the laborious process of actually buying, managing and selling commercial properties.

Lower volatility: REITs tend to be less volatile than traditional stocks, in part because of their larger dividends. REITs can act as a hedge against the stomach-churning ups and downs of other asset classes. However, no investment is immune to volatility.

REIT cons explained

Heavy debt: Another consequence of their legal status is that REITs have a lot of debt. They’re usually among the most indebted companies in the market. However, investors have become comfortable with this situation because REITs typically have long-term contracts that generate regular cash flow — such as leases, which see to it that money will be coming in — to comfortably support their debt payments and ensure that dividends will still be paid out.

Low growth and capital appreciation: Since REITs pay so much of their profits as dividends, to grow, they have to raise cash by issuing new stock shares and bonds. Sometimes, investors are not always willing to buy them, such as during a financial crisis or recession. So REITs may not be able to buy real estate exactly when they want to. When investors are again willing to buy stocks and bonds in the REIT, the REIT can continue to grow.

Tax burden: While REIT companies pay no taxes, their investors still must pay taxes on any dividends they receive, unless their REIT investments are held in a tax-advantaged account. (That’s one reason REITs can be a great fit for IRAs.)

Non-traded REITs can be expensive: The cost for initial investment in a non-traded REIT may be $25,000 or more and may be limited to accredited investors. Non-traded REITs also may have higher fees than publicly traded REITs.

Illiquid (especially non-traded and private REITs): Publicly traded REITs are easier to buy and sell than actual properties, but as noted above, non-traded REITs and private REITs can be a different story. These REITs must be held for years to realize potential gains.

Investing in REITs: How to get started

Investing in REITs is as simple as opening a brokerage account, or investment account, which usually takes just a few minutes. Then you’ll be able to buy and sell publicly traded REITs just like you would any other stock. Because REITs pay such large dividends, it can be smart to keep them inside a tax-advantaged investment account like a Roth IRA to get the best possible tax treatment.

If you don’t want to trade individual REIT stocks, it can make a lot of sense to simply buy an ETF or mutual fund that vets and invests in a range of REITs for you. You get immediate diversification and lower risk. Many brokerages offer these funds, and investing in them requires less legwork than researching individual REITs for investment.

» Interested in income? Check out high-dividend ETFs.

Former NerdWallet writer Jim Royal contributed to this article.