What You Need to Open a REIT Investment Account

To invest in REITs, you need a brokerage account — the same kind of account you would use to buy stocks or mutual funds. You do not need a separate account just for REITs. Most major brokerages (Fidelity, Charles Schwab, E*TRADE, Vanguard, and others) let you buy REITs through a regular investment account, and many charge no commission to trade them.

Opening a brokerage account takes about 15 minutes online. You will provide your name, address, Social Security number, and employment information. The brokerage will verify your identity and then deposit funds into your account. Once the money clears, you can search for and purchase REITs the same way you would buy any stock — by typing the ticker symbol into a search box and placing an order.

You do not need a large amount of money to start. Some REITs trade for under $50 per share, though prices vary widely. You can also invest in REIT mutual funds or exchange-traded funds (ETFs), which bundle many REITs together and often cost less per share than buying individual REITs.

Key Takeaways

  • A standard brokerage account from any major broker lets you buy REITs without a separate process or special account type.
  • Individual REITs trade like stocks and require you to research each one, while REIT mutual funds and ETFs spread your money across many properties and managers.
  • REIT dividends are taxed as ordinary income, not as capital gains, so holding them in a tax-advantaged account like an IRA can reduce what you owe.
  • REITs must distribute at least 90 percent of their taxable income to shareholders, which is why they typically pay higher dividends than stocks.

Individual REITs Versus REIT Funds

When you buy an individual REIT, you own shares in one real estate company. You research that company's properties, management, debt level, and dividend history yourself. This approach gives you control and lets you pick REITs that match your goals — for example, a REIT focused on apartment buildings if you believe housing demand will rise. The downside is that one REIT's poor performance can hurt your returns, and researching each one takes time.

A REIT mutual fund or ETF holds shares in dozens or hundreds of REITs at once. A fund manager (or an index formula, in the case of index funds) decides which REITs to include. You pay a small annual fee, called an expense ratio, usually between 0.1 and 0.5 percent per year. The advantage is when ready diversification — if one REIT underperforms, others may compensate. The disadvantage is that you have less control over which properties your money funds.

For most beginners, a REIT ETF or index fund is simpler and safer. You can buy it through your brokerage account just like an individual REIT, and you get exposure to the entire REIT market with one purchase.

How to Research and Compare REITs

If you choose to buy individual REITs, start by looking at the REIT's official website and its annual report (called a 10-K filing, available free on the SEC website). Look for the types of properties it owns — apartments, offices, shopping centers, data centers, hospitals — and the geographic regions where those properties sit. A REIT that owns only one type of property in one region is riskier than one with variety.

Check the dividend yield, which is the annual dividend divided by the share price. A REIT yielding 4 percent means you receive 4 percent of your investment back each year as a dividend. Compare this to other REITs in the same category and to the overall stock market. A yield that looks too high (8 percent or more) can signal that the market doubts the REIT's ability to keep paying that much.

Look at the REIT's debt-to-equity ratio, which tells you how much money it borrowed versus how much owner money is invested. A ratio above 1.0 means the REIT owes more than its owners have put in; this is not automatically bad, but it means the REIT is more vulnerable if property values or rents fall. Read what analysts say about the REIT on financial websites like Morningstar or Yahoo Finance, but remember that past performance does not predict future results.

Tax Considerations for REIT Investors

REIT dividends are taxed as ordinary income, not as capital gains. This means if you earn $1,000 in REIT dividends, that $1,000 is taxed at your regular income tax rate, which is usually higher than the capital gains rate. This is one reason many investors hold REITs in tax-advantaged accounts like a traditional IRA or Roth IRA, where dividends are not taxed each year.

If you hold REITs in a regular taxable brokerage account, you will receive a Form 1099-DIV each January showing the dividends you received. You report this on your tax return. If you sell a REIT at a profit, you also owe capital gains tax on the profit, just as you would with any stock.

Some REIT dividends may may have access to for a 20 percent deduction if you meet certain income limits, but this depends on your total income and the type of REIT. Talk to a tax professional if you are unsure how your REIT holdings will affect your taxes.

Where to Buy REITs and What to Expect

You buy REITs through your brokerage account using the same process as buying stocks. Log in, search for the REIT's ticker symbol (for example, SPG for Simon Property Group), and enter the number of shares you want to buy. You can place a market order, which buys at the current price, or a limit order, which buys only if the price drops to a level you set. Most brokerages execute the order within seconds during market hours.

REIT shares trade on major stock exchanges like the New York Stock Exchange and NASDAQ, so they are liquid — you can sell them quickly if you need the money. The price changes throughout the trading day based on supply and demand, just like any stock. You will see your shares appear in your account within one or two business days.

If you buy a REIT mutual fund or ETF, the process is identical. You search for the fund's ticker, enter the dollar amount or number of shares, and place the order. Many funds allow you to set up automatic monthly investments, which can help you build your position over time without worrying about timing the market.

Starting Small and Building Your REIT Portfolio

Most beginners benefit from starting with one REIT ETF or mutual fund rather than trying to pick individual REITs right away. This gives you real estate exposure without requiring deep research. Once you feel comfortable, you can add individual REITs if you want to.

A common approach is to put 5 to 15 percent of your overall investment portfolio into REITs. This gives you real estate diversification without making real estate your entire investment. If you are young and have decades until retirement, you might lean toward growth-focused REITs (such as those owning data centers or industrial warehouses). If you are closer to retirement, you might prefer income-focused REITs (such as those owning apartments or office buildings) because they tend to pay higher dividends.

Remember that REIT prices can fall, especially if interest rates rise or if the real estate market weakens. Do not invest money you will need within the next few years. REITs work best as a long-term holding, where you can ride out short-term price swings and collect dividends along the way.

Common Mistakes Beginners Make

One mistake is chasing high dividend yields without understanding why the yield is high. If a REIT's dividend yield jumps to 8 or 10 percent, it usually means the share price has fallen because the market is worried about the REIT's future. Before buying, find out why the price dropped.

Another mistake is treating REITs like bonds because they pay dividends. REITs are real estate companies, not loans, so their share price can swing up and down significantly. If you need stable income and cannot tolerate price swings, a REIT may not be right for you.

A third mistake is holding REITs in a regular taxable account when you have room in an IRA or 401(k). Because REIT dividends are taxed as ordinary income, sheltering them in a tax-advantaged account can save you hundreds or thousands of dollars over time.

Frequently Asked Questions

Do I need a lot of money to start investing in REITs?

No. Individual REIT shares can cost anywhere from $20 to over $100, so you can start with a few hundred dollars. REIT ETFs and mutual funds work the same way — you can buy one share or fractional shares depending on your broker. Many brokerages now allow you to buy fractional shares, so you can invest any dollar amount.

Can I hold REITs in a retirement account like an IRA?

Yes. You can buy individual REITs, REIT mutual funds, or REIT ETFs inside a traditional IRA, Roth IRA, or 401(k). This is actually recommended because REIT dividends are taxed as ordinary income, and holding them in a tax-advantaged account shields you from that tax each year.

What is the difference between a REIT and a real estate mutual fund?

A REIT is a company that owns and manages real estate and must distribute 90 percent of its income to shareholders. A real estate mutual fund is a fund that holds shares in multiple REITs or real estate companies. A REIT mutual fund combines both — it is a fund that invests in REITs.

How often do REITs pay dividends?

Most REITs pay dividends quarterly, meaning four times per year. Some pay monthly. Check the REIT's website or your brokerage to see the payment schedule. The dividend amount can change, so do not assume it will stay the same forever.

Can I lose money investing in REITs?

Yes. REIT share prices rise and fall based on market conditions, interest rates, and the real estate market. If you sell when the price is lower than what you paid, you lose money. However, if you hold long-term and reinvest dividends, historical data shows that REIT investors have typically earned positive returns over decades.