How to Invest in Real Estate (REIT) Funds in 2025

Real estate investing has long been a cornerstone of wealth-building strategies. Fortunately, Real Estate Investment Trusts (REITs) offer a more accessible pathway for investors of all levels to participate in the real estate market. For those wondering how to invest in real estate (REIT) funds in 2025, the process has never been more accessible. With Nareit estimating that nearly 170 million Americans live in the 50% of all households that own REITs as of January 2024, these investment vehicles have become increasingly popular. 

This guide will equip you with the knowledge and strategies to confidently invest in REITs in 2025.

Table of Contents

What is a REIT?

REIT Trading: Buying and selling REITs

Types of REITs and how to invest in them

Making money with REITs

How to choose the best REIT for you

Benefits of investing in REIT

Cons of investing in REIT

REIT risks vs rewards

5 REITs to buy in 2025

Tips on starting to invest in REITs

How much to invest

FAQs | Final Thoughts

What is a REIT?

Real Estate Investment Trusts, or REITs, are companies that own real estate. It's typically commercial real estate they own, and many companies own them and run them too. Commercial real estate properties are typically income producing real estate that pays individual investors dividend income in the form of rental income or mortgage interest, depending on the type of REIT chosen.

To qualify as a REIT, companies must:

• Invest 75% or more of their cash and assets in real estate
• Have at least 75% of their income come from real estate
• Return at least 90% of their profits to shareholders as dividend income
• Not have five or fewer investors own more than 50% of the property shares

REIT Trading: Buying and selling REITs

Understanding the REIT's trading status is crucial because it affects how you can buy and sell individual REITs and how long you might need to hold onto them based on their liquidity. You can invest in a publicly traded REIT by buying shares listed on a major stock exchange through a broker. For non-traded REITs, shares can be acquired through a broker participating in the REIT’s offering. Alternatively, you can invest in a REIT mutual fund or exchange-traded fund (ETF) that holds REIT shares.

Publicly-traded REIT

Public REITs are traded on the standard stock exchanges, and governed by the SEC. Anyone can buy or sell them during regular trading hours. As a result, they are typically more transparent than other asset classes, and they are much more liquid since there is a secondary market ready to buy REITs at any time.

Public non-traded REIT

Public non traded REITs are also governed by the SEC, but they aren't nearly as liquid. There isn't a secondary market ready to buy the investments at any given moment. So you could be tied up in the investment for many years. Public non-listed REITs often have valuation delays, as it can take over a year to get a true value.

Private REIT

Private REITs are the riskiest of the three options because they aren't registered with the SEC, and they are even more difficult to value. Since there isn't a market waiting to buy them off investors, your capital is often tied up for more extended periods, and the risk of loss is much higher without the SEC registration.

Types of REITs and how to invest in them

As you choose the best publicly traded REIT, public non-traded REITs, or private REITs, pay close attention to the types of REITs they are or the type of real estate assets they invest in before adding them to your investment portfolio.

Retail REITs

Retail REITs invest in shopping centers, strip malls, and freestanding retail space. In fact, most retail centers you frequent are likely owned by a REIT. As of May 2024, there are approximately 28 retail REITs on the FTSE Nareit U.S. Real Estate Indexes, providing a diverse range of investment options within this sector.

Before investing in a retail REIT, it's crucial to carefully examine the overall health of the retail industry. Is the sector experiencing growth and innovation, or is it facing significant challenges? Since the primary source of income for retail REITs is rent, investing in a thriving market is paramount. Consider the anchor store strength. If a mall, for example, has weak anchor stores, they may struggle to maintain their rent payments. This can lead to defaults and negatively impact the overall performance of the REIT.

Residential REITs

Residential REITs invest in multi-family units that the real estate companies rent out to individual renters. For example, they might own an apartment building or multi-family unit, collecting rents and sharing them with REIT shareholders.

It's best to look in areas with high rents and a high need for rental properties. Residential REITs perform best in areas where residential housing is unaffordable, causing more people to rent versus buy. A close look at the local real estate market will help you determine which areas are best for this. (Learn more about REITs vs. rentals in this detailed guide).

Healthcare REITs

Healthcare REITs can be a great way to invest in real estate. However, it can be risky too. If you add healthcare REITs to your portfolio, make sure you diversify. In other words, don't invest in all hospitals or all medical offices. As healthcare needs and expenses rise, so does the viability of certain establishments. Like any investment, diversify your risk to offset the chance of a total loss.

Office REITs

Office REITs invest in office buildings. The office building tenants pay the REIT rent, which the REIT passes along to shareholders. As with any commercial real estate investment, look at the area's viability. What is the need for office real estate in the area? What is the unemployment rate? How long are companies signing leases for? The higher the need for office space, the lower the unemployment rate, and the longer the leases, the lower your risk becomes.

Mortgage REITs

Mortgage REITs focus on the debt side of real estate investing. Instead of owning a portion of the property itself (like an office building or apartment complex), these REITs lend money to real estate investors or developers. This loan serves as collateral for the investment.

Shareholders in Mortgage REITs earn a portion of the interest collected on these loans. While the investment timeline can sometimes be longer due to the nature of long-term real estate loans, some Mortgage REITs offer shorter-term loan options with maturities ranging from 6 to 12 months.

With over 30 Mortgage REITs listed on the FTSE Nareit Indexes, investors have numerous options. You can invest directly in these REITs through a broker or gain exposure to a diversified portfolio of Mortgage REITs by purchasing shares in a participating REIT mutual fund or REIT exchange-traded fund (ETF).

Equity REITs

Equity REITs invest in a property's equity. Investors of equity REITs earn rental income as a form of dividends and earn a portion of the property's equity or long-term capital appreciation when the REIT sells the real estate.

There are several ways to invest in Equity REITs. You can purchase shares of publicly traded Equity REITs through a brokerage account. You can also invest in diversified real estate portfolios of Equity REITs through mutual funds or exchange-traded funds (ETFs). These offer professional management, portfolio diversification, and lower investment minimums.  

Hybrid REITs

Hybrid REITs own both equity investments and debt investments, aka mortgage REITs. This can be a key way to diversify your portfolio without investing in multiple REITs. You kill two birds with one stone by diversifying your funds across debt and equity investments.

Making money with REITs

Making money with REITs is the goal, but like any investment in your investment portfolio, there's never a guarantee you'll make money. However, diversifying your portfolio with stock market assets, REITs, bonds, and other commodities can help lower your risk of loss.

REITs make money by collecting rental income or interest on a monthly basis. In the case of equity REITs, they also earn money from the equity buildup and capital appreciation. Then, when the REIT sells the property, they distribute the profits to the shareholders.

Each REIT pays dividends in different intervals. Most commonly, they pay dividends monthly, but some pay dividends quarterly or even annually, so always read the fine print. You can cash out your dividends in most cases but may also be able to reinvest them to compound your earnings if you wish.

How to choose the best REIT for you

Choosing the right REIT investments means making a lot of decisions. First, you must choose between publicly traded REITs and non traded REITs. To make this decision, you should determine your investment goals, timeline, and dividend needs.

As you evaluate the REITs themselves, you should focus on the company's growth, metrics, and historical performance. Of course, any company can call itself a REIT, but it takes careful due diligence to ensure the company is legit, has a positive past performance, and is experienced enough to bring in earnings for investors.

Keep in mind as you buy and sell REITs, you should know the company's requirements. Publicly traded REITs are more liquid than non traded REITs, so always pay close attention to the timeline. Real estate investments can require you to tie up your funds for several years without the option for early redemption, so always look at the big pictu

Benefits of investing in REIT

• Low capital requirements: You don't need hundreds of thousands to invest in real estate. You can invest with a fraction of the investment's value and still be a real estate investor.
• Dividends: Most REITs pay dividends as they are required to pay out 90% of their profits to shareholders. As a result, you might receive monthly, quarterly, or annual dividends.
• Capital appreciation and capital gains: You might earn capital appreciation or gains if you stick out the investment through its lifetime. When real estate companies sell the real estate they invested in, the shareholders earn a prorated portion of the profits.
• Diversified portfolio: Real estate can be a great way to diversify your portfolio, but sometimes it's out of reach for the typical retail investor. Whether an equity REIT or mortgage REIT, you can diversify your portfolio from the traditional stocks and bonds by investing in REITs.

Cons of investing in REIT

• Tax liabilities: REIT investors pay ordinary taxes on any dividends earned from a REIT. This can significantly increase your taxable income and your overall tax liabilities. It's best to talk to your financial advisor about the risk before investing.
• Can be a fad: Depending on the type of commercial property you invest in, you might be at risk of a fading fad. For example, if you invest in REITs that invest in a cupcake shop and the shop suddenly becomes less popular, you might find yourself with investments with non-paying tenants.
• Your money is tied up for a long time: Your investment capital can be tied up for a long time with REITs. While they have the potential for high dividend yields, you might not see the full return on your investment for 5 - 8 years.

REIT risks vs rewards

When evaluating the risks versus rewards of investing in REIT, it’s crucial to weigh the potential gains against the possible downsides. On the reward side, REITs offer attractive benefits, such as high dividend yields, diversification, and liquidity compared to direct property ownership. They also provide exposure to a variety of real estate sectors, like residential, commercial, and industrial properties, which can buffer against market fluctuations. 

However, the risks include market volatility, interest rate sensitivity, and the possibility of poor management decisions within the REIT. Additionally, some REITs may be affected by factors like changes in property values or rental income disruptions. Carefully assessing these factors will help determine whether the potential returns align with your investment goals and risk tolerance.

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5 REITs to consider in 2025

Looking to capitalize on the real estate sector in 2025? Here are five REITs with strong industry positioning, growth potential, and income-generation opportunities. Investors should conduct their own due diligence before making any investment decisions.

Prologis Inc. (PLD)

Prologis is a leading industrial REIT specializing in logistics real estate. The company focuses on high-demand markets with significant barriers to entry and strong consumer growth. With properties strategically located near major labor pools and transportation hubs, Prologis is well-positioned to benefit from the long-term expansion of e-commerce and supply chain optimization. Additionally, its strategic capital segment manages a substantial portfolio of third-party assets, contributing to its diversified revenue streams.

Pebblebrook Hotel (PEB)

Pebblebrook Hotel Trust is a major U.S. lodging REIT that focuses on independent and boutique hotels in prime urban markets. Following its merger with LaSalle Hotel Properties, the company has expanded its portfolio to nearly 12,000 rooms across upscale properties. Historically, Pebblebrook has demonstrated strong revenue per available room (RevPAR) and operational efficiency. Investors looking at the hospitality sector may find it worth further research, particularly as travel demand continues to evolve.

American Tower Corp. (AMT)

American Tower is a global leader in owning and operating wireless communications and broadcast towers. With a strong presence in international markets, the company has identified emerging regions—particularly in Africa—as key growth opportunities. As demand for mobile data and 5G technology continues to rise, American Tower’s extensive infrastructure portfolio places it in a strong position to capitalize on the expanding digital economy.

Park Hotels & Resorts (PK)

Park Hotels & Resorts is a major player in the hotel REIT sector, focusing on upper-upscale properties in prime domestic locations. Since spinning off from Hilton Worldwide Holdings, the company has streamlined its portfolio by divesting lower-quality assets and acquiring high-end hotels under well-known brands like Marriott, Hyatt, and IHG. Its strategic adjustments aim to enhance long-term profitability and operational efficiency, making it an interesting prospect for those exploring hospitality investments.

Realty Income Corp. (O)

Realty Income is a premier retail REIT known for its focus on single-tenant commercial properties. As the largest triple-net lease REIT in the U.S., its business model ensures a steady revenue stream, as tenants are responsible for property expenses such as taxes, insurance, and maintenance. With a history of consistent dividend payments and a broad portfolio spanning multiple industries, Realty Income continues to attract attention from income-focused investors.

Tips on starting to invest in REITs

Investing in REITs can be an exciting addition to your investment portfolio. Here are some key tips for beginners:

1. Start with education: Begin by thoroughly researching REITs. Understand how they work, the different types of REITs, and the associated risks and rewards.
2. Determine your investment goals: Are you seeking passive income, growth, or a combination of both? This will help you select REITs that align with your financial goals.
3. Diversify your portfolio: Don't put all your eggs in one basket. Diversify across different REIT sectors (residential, commercial, industrial, healthcare).
4. Conduct thorough research: Before investing in any individual REIT, carefully research its financial performance, management team, and the underlying real estate assets.
5. Consider your risk tolerance: If you are risk-averse, consider investing in more stable and established REITs with a history of consistent dividend payments.
6. Monitor your investments: Regularly review your REIT investments to track their performance and make adjustments as needed. 
7. Seek professional advice: If you're unsure about which REITs to invest in, consider consulting with a qualified financial advisor. 

How much to invest

How much you should invest in a real estate investment trust depends on your gross income, financial plan, and investment strategy. No two investors will have the same money they can or want to invest. It also depends if you invest in a REIT that is only for accredited investors (requires much higher investment minimums) or non accredited investors (allows much lower investment minimums).

FAQs

How much money do you need to invest in REITs?

Each REIT has a different minimum investment requirement. Some can be as low as $100, and others can be as much as $25,000. Read the fine print to find out REIT's minimum investment requirement and see how it fits in with your portfolio.

Can you lose money on a REIT?

You can lose money on any investment, including REITs. There's never a guarantee that real estate will appreciate. While historically, it performs well, you should never assume that you'll make money on a REIT. Diversifying your portfolio can reduce the risk of a total loss.

Are REITs safe during a recession?

REITs can offer both stability and risk during a recession, depending on various factors such as the type of REIT and the specific economic conditions. In general, REITs that focus on sectors considered "defensive," such as healthcare or residential real estate, may provide more stability during economic downturns. Always do your due diligence.

What is the average return of REITs?

Like any investment, REIT returns can fluctuate, but on average, they have a return of 6% - 10%, which often beats the stock market investment returns.

Are REITs short or long-term investments?

Most REITs are long-term investments and can tie up your funds for as long as 5 to 8 years, but there are some short-term options, especially if you are willing to help real estate investors and builders finance real estate, you may find shorter term loans that mature quickly. Equity REITs, though, usually have a longer timeline.

Final thoughts

There are many ways to invest in REITs, so taking your time and learning how to invest in REIT is important. Assess any REIT risk and reward, timeline, and historical performance before investing to give yourself the best chance at decent earnings. Learn more by signing up and visiting our blog.‍