What are the different types of real estate investment trusts (REITs) and how do you invest in them?

Can investments in real estate be rewarding? Absolutely. Does everyone enjoy managing properties? Not quite. Fortunately, there’s an alternative for those who don’t want to be landlords: REITs.

But what is a REIT? Real Estate Investment Trusts (REITs) provide an easier way to invest without the hassles of property ownership. In this article, you’ll learn about the various types of REITs, their features, and how you can invest in them.

Types of real estate investment trusts (REITs)

REITs come in several forms. Each type serves different investment strategies and risk levels. Knowing the differences helps you make informed decisions that match your goals.

Equity REITs

Equity REITs invest in and manage income-generating properties. These can include office buildings, shopping centers, and apartments. They earn money by leasing space, collecting rent, and distributing dividends to shareholders.

Investing in equity REITs has several benefits. First, they provide a steady income stream through regular dividends. You can also invest in real estate without worrying about property management, as equity REITs handle all operational tasks.

Mortgage REITs

Mortgage REITs (mREITs) focus on financing real estate instead of owning it. They offer loans to property owners or invest in mortgage-backed securities. mREITs earn income from the interest on these loans, which can lead to higher yields – but also increased risks.

These REITs can be appealing for their potential for higher returns. However, be cautious of risks related to interest rates. mREITs can diversify your portfolio, making them a valuable addition if managed carefully.

Hybrid REITs

Hybrid REITs blend elements of equity and mortgage REITs. They invest in both properties and mortgages. This approach allows for flexibility and can adapt to market changes. Hybrid REITs give you exposure to both rental income and interest income.

By investing in hybrid REITs, you can enjoy a balanced investment strategy. They offer stable income while still allowing for property value appreciation. This makes hybrid REITs suitable for investors seeking a diversified approach.

Different types of REITs by sector

REITs can also be categorized by the sectors in which they invest. Understanding these sectors helps you align your investments with market trends.

Retail REITs

Retail REITs invest in properties like shopping malls and retail centers. They generate income from leasing space to businesses. As consumer behavior shifts to online shopping, these REITs may face challenges. However, they can still be a solid investment if you believe in the resilience of brick-and-mortar retail.

Office REITs

Office REITs focus on commercial office buildings. They earn income through long-term leases with businesses. Demand for office space can vary based on the economy. If you invest in established markets, these REITs can provide stable returns.

Industrial REITs

Industrial REITs invest in warehouses and distribution centers. They benefit from the growth of e-commerce. As companies seek efficient storage and distribution, these REITs are well-positioned for growth. This sector is a smart investment choice if you’re focused on the future of online retail.

Residential REITs

Residential REITs focus on apartment complexes and single-family rentals. They generate income through tenant rents, providing steady cash flow. Investing in residential REITs is often seen as safer, especially in areas with high demand for rental housing.

Healthcare REITs

Healthcare REITs invest in properties like hospitals and nursing facilities. They tend to be less sensitive to economic downturns, as demand for healthcare remains steady. This stability can make healthcare REITs appealing to those seeking reliable income.

Hospitality REITs

Hospitality REITs invest in hotels and resorts. They generate income from room bookings and amenities. These investments can be more volatile, influenced by travel trends. If you are optimistic about the travel industry’s recovery, hospitality REITs might offer significant upside potential.

Which type of REIT invests directly in properties?

Equity REITs invest directly in physical properties. They buy, own, and manage income-producing real estate. This approach lets you enjoy the benefits of real estate investing without the complexities of direct ownership. If you want exposure to property appreciation, equity REITs are a solid option.

What type of REIT should I invest in?

Choosing the right REIT depends on your investment goals and risk tolerance. If you prefer steady income, equity REITs may suit you well. For higher potential yields, consider mortgage REITs, but keep their risks in mind. Hybrid REITs can provide a balanced approach, making them ideal for diversification.

Regardless of your choice, thorough research is essential. Understanding the specific sectors helps enhance your investment strategy. Engaging with experts can further refine your approach to REIT investments.

Ready to invest in REITs? MRI Software can help

MRI Software offers real estate investment management software for real estate investors and managers. With strong analytics, performance tracking, and reporting features, MRI Software helps you make informed decisions. As you explore different types of REITs, our tools enhance your understanding of market trends, helping you stay ahead.

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