REITs were designed to make “little” investors’ lives more profitable by making commercial real estate readily accessible to them. But they also simplify the job of being a landlord – at least for shareholders. When you buy a share of a REIT, you don’t have to worry about maintaining the property, dealing with the tenants, or assessing encroaching competition.

Management handles all that for you.

You can own your piece of this pie by simply calling your broker or going to your personal investment platform and clicking a few buttons. Just like that, you hold the deed to a portion of properties in about as stress-free a manner as possible.

This isn’t to say that REIT ownership is a completely hands-off investment, however. You still have responsibilities to be aware of, including making sure they fit properly into your portfolio. Always ask yourself before you buy an asset – any asset – if it will complement the holdings you already have. Does it add something to your investment spread that’s not there already?

You can determine this on your own (or with the help of your broker), picking and choosing individual REITs that best match your temperament, interests, and goals. That’s how we prefer it, evaluating each individual stock based on its stock price, holdings, management, history, and potential. But that does take time.

At iREIT®, we aim to help you out with that process, digging into each dividend-paying opportunity and writing up our results for you to read. It’s something we take great pride in, in fact. Even so, every investor still ultimately needs to do their own research, make their own decisions, and take responsibility for their own purchases. This is why we fully understand the appeal of hiring a financial planner or advisor. 

REIT ETFs

Another way to simplify the process is to buy up “baskets” of REITs. This can come in a few different forms, one of them being exchange traded funds.

More commonly known as ETFs, these assets are actually a collection of assets: a single, buyable and sellable entity that invests in a range of other buyable, sellable entities. Each one targets a set category, some of them very broad, some of them very specific. For instance, there are ETFs that hold shares of every single company listed on the S&P 500. Other ETFs own only REITs. And still, other ETFs own only specific kinds of REITs. 

There are also those that target commodities such as precious metals, bonds, and other non-stock investments. Regardless, when you buy an ETF, you get a piece of the profit (or loss) across an array of companies, products, indices, or sectors, while limiting your risk. If one holding starts to struggle, the larger fund’s price should be propped up by all the other holdings.

Recognizing that there are quite a few “average Joe” investors out there who are limited in the amount of time and/or money they have to build their own basket of REITs, iREIT® proudly provides research on over 30 REIT exchange traded funds. 

A list of most REIT ETFs can be viewed HERE.

REIT Mutual Funds

Another “basket” choice is mutual funds. 

Unlike ETFs, they generally have a minimum investment requirement, varying by fund specifications and the company offering them. They’re also always actively managed by fund managers or teams who make decisions to buy and sell stocks or other securities to help their investors profit. (ETFs are rarely actively managed.) 

This means mutual funds require much more time, effort, and manpower to run. And that means they come with higher management fees – accounting for an average 1.25% of your total assets and expenses (e.g., accounting and legal costs that are paid indirectly through reduced dividends). 

There are two legal classifications for mutual funds:

1. 1. Open-ended funds dominate the mutual fund marketplace in volume and assets under management. There’s no limit to the number of shares the fund can issue, and the value of an individual’s shares is not affected by the number of shares outstanding.
   2. Closed-end funds issue only a specific number of shares. They do not change that limit as investor demand grows

There are many mutual funds that specialize in REITs. And even active investors might want to invest a minimum amount in some of them in order to benchmark their personal REIT investment track records and get a window on what institutional investors are doing.

One of Brad’s personal favorites is Cohen & Steers Realty Shares (CSRSX), which had 33 holdings and $4.5 billion under management as of June 30, 2023.

A list of all REIT mutual funds can be viewed HERE.

REIT Closed-End Funds

A closed-end fund, or CEF – not to be confused with a closed-end mutual fund – is organized as a publicly traded investment company. Like a mutual fund, it’s a pooled investment pool with a manager who oversees it. As such, it charges an annual expense ratio that investors must pay regardless of whether they make a profit or not.

CEFs start out by raising a fixed amount of capital with a fixed number of shares through an initial public offering (IPO). They are then structured, listed, and traded like stocks on a stock exchange, where they can make income and capital gain distributions to shareholders.

However, unlike regular stocks, they represent interest in specialized portfolios of securities that are actively managed by investment advisors and typically concentrate on a specific industry, geographic market, or sector.