Key takeaways
- A listed REIT lets you own part of an income-producing property portfolio in a regular broker account.
- REITs generally distribute much of their income, but dividends can be cut.
- Use FFO, occupancy, leverage and price-to-NAV rather than net income alone.
- A REIT fund diversifies across companies; one REIT concentrates on a few assets.
- Rates, the economy and sector trends all move REIT prices.
Buying a building takes a large deposit, a mortgage and a lot of patience. A real estate investment trust, usually called a REIT, offers a different route: you buy shares in a company that owns property, from a normal brokerage account, in whatever amount you choose. That convenience comes with its own trade-offs.
What a REIT is
A REIT is a company or trust that owns, and usually operates, income-generating real estate such as offices, warehouses, apartments, shopping centres, data centres or healthcare buildings. Tenants pay rent; the REIT covers costs and distributes much of the profit to shareholders.
In many countries, the REIT label is a legal status. To qualify for favourable tax treatment, the company typically must distribute a high share of its income and meet limits on what it owns. The exact conditions vary by country, so check how the rules apply to the REIT you are considering.
- Equity REITs own and rent property. Most of the market is of this type.
- Mortgage REITs hold loans or mortgage securities and earn interest. They are more sensitive to interest rates and funding conditions.
- Listed REITs trade on an exchange, so you can buy and sell at market prices.
- Non-listed REITs are sold through private channels with limited liquidity and often higher fees. They are not what a standard broker account gives you.
Ways to get real-estate exposure through a broker
| Route | What you own | Main upside | Main watch-out |
|---|---|---|---|
| Single REIT share | A slice of one property company | Targeted choice of sector | Concentration in a few assets |
| REIT ETF or fund | A basket of many REITs | Diversification across companies | Fund fees; still property-cycle risk |
| Property developers and homebuilders | Shares in construction businesses | Linked to housing activity | Cyclical; not rental income |
| Real-estate CFDs or index derivatives | A contract, not an asset | Short-term access and short selling | Leverage, financing costs, no ownership |
| Direct property | A building (not via a broker) | Control and personal use | Large capital, low liquidity, high costs |
Reading a REIT: the numbers that matter
Ordinary earnings can mislead for property companies because buildings are depreciated on paper while often holding or increasing value. REITs therefore report funds from operations, or FFO, as a cleaner measure of cash earnings.
An illustrative calculation: a REIT reports net income of 50, depreciation of 40 and a one-off gain of 10 from selling a property. FFO is 50 plus 40 minus 10, or 80. If it has 100 shares in issue, FFO per share is 0.80. If the shares trade at 16 and the REIT pays out 0.64 a year, the yield is 4% and the payout is 80% of FFO.
- Occupancy: the share of space that is rented. Falling occupancy usually precedes lower income.
- Lease length and tenant quality: long leases with strong tenants make income steadier.
- Leverage: debt relative to assets, and how much debt matures soon. Property is often financed with borrowing.
- Price to net asset value: a share can trade at a discount or premium to the estimated value of the properties.
- Sector and region: a shopping centre REIT and a warehouse REIT face very different conditions.
What drives REIT prices
REITs sit between shares and bonds. Rent provides bond-like income, but share prices move with sentiment, borrowing costs and the economy. When interest rates rise, financing becomes more expensive, bond yields compete for income investors, and property valuations often come under pressure. Falling rates can have the opposite effect.
Different property types respond differently. Office buildings may suffer if remote work reduces demand. Logistics buildings depend on trade and consumption patterns. Residential rent may be regulated. Diversification across sectors can lessen a single trend's impact.
A short evaluation routine
Before you buy a REIT or REIT fund
- Identify what it owns. Read the property types, locations and the largest tenants.Tip: A fund factsheet will list sector and country weights.
- Check the financing. Look at the debt ratio, the average interest rate and refinancing dates.
- Examine the payout. Compare dividends with FFO rather than net income, and look for payout stretching.
- Compare valuation. Look at the price compared with net asset value and with similar REITs.
- Review taxes and costs. Check how dividends are taxed in your jurisdiction, any foreign withholding and the broker's currency conversion.
Frequently asked questions
Are REITs the same as owning property?
No. You own shares, which trade daily and move with market sentiment, not appraisals. You do not control the buildings or get the same tax treatment as a direct owner.
Why do REIT dividends look high?
Distribution rules often require a large share of income to be paid out, so yields can exceed those of typical shares. A high yield can also reflect risk.
Can REITs lose value?
Yes. Prices can fall significantly, particularly when borrowing costs jump or a sector weakens.