How to Buy REITs and Add Them to Your Portfolio

The three ways to own REITs

You can buy REITs in the same way you buy stocks: through a brokerage account, either individually or as part of a fund. The three routes are buying individual REIT shares on an exchange, buying a mutual fund that holds multiple REITs, or buying an exchange-traded fund (ETF) that tracks REITs.

Individual REIT shares trade on stock exchanges like the NYSE and NASDAQ under ticker symbols. You place an order through your brokerage the same way you would for any stock — you pick a REIT, enter the number of shares you want, and the trade settles in two business days. This route gives you direct ownership and control over which properties and REIT managers you back, but it requires you to research individual companies and build diversification yourself.

REIT mutual funds and ETFs bundle dozens or hundreds of REITs into a single holding. You buy one fund share instead of many individual REITs, which spreads your money across different property types and managers automatically. Mutual funds are actively managed — a fund manager picks which REITs to hold — while most REIT ETFs track an index like the MSCI US REIT Index or the Dow Jones US Real Estate Index. ETFs typically charge lower fees than actively managed mutual funds.

Key Takeaways

• Individual REIT shares trade on stock exchanges and can be bought through any brokerage account, just like stocks, with no minimum investment beyond the share price.
• REIT mutual funds and ETFs hold many REITs in one fund, spreading your money across different property types and managers without requiring you to pick individual companies.
• You need a brokerage account to buy any REIT — whether individual shares, mutual funds, or ETFs — and you can open one online in minutes with most brokerages.
• REIT dividends are taxed as ordinary income, not capital gains, so holding them in a tax-advantaged account like an IRA can reduce your tax bill.
• REITs typically perform differently from stocks and bonds, so they can add diversification to a portfolio, but they also carry real estate market risk.

Opening a brokerage account

You cannot buy REITs without a brokerage account. Most major brokerages — Fidelity, Charles Schwab, E*TRADE, Vanguard, and others — let you open an account online in 10 to 15 minutes. You will need your Social Security number, a government ID, and a bank account to link for deposits.

When you open the account, you will choose between a regular taxable account and a tax-advantaged account like a traditional IRA or Roth IRA. A taxable account has no contribution limits and no restrictions on when you can withdraw money, but you pay taxes on dividends and capital gains each year. An IRA lets you defer or avoid taxes on REIT dividends and gains, which is especially valuable because REIT dividends are taxed as ordinary income rather than the lower capital gains rate. If you are under 59½, withdrawals from a traditional IRA before retirement trigger a 10% penalty plus income tax, though Roth IRAs have different rules.

Most brokerages do not charge account maintenance fees, and many offer commission-free trading on stocks and ETFs. Some charge a small fee to buy or sell mutual funds, so check the fee schedule before you fund the account.

Buying individual REIT shares

Once your account is funded, buying an individual REIT share takes the same steps as buying a stock. Log into your brokerage, search for the REIT by name or ticker symbol, enter the number of shares you want, and place the order. Most brokerages let you place a market order (buy at the current price immediately) or a limit order (buy only if the price drops to a level you set).

Individual REITs range from small, specialized companies focused on one property type to large diversified REITs that own apartments, offices, warehouses, and shopping centers across the country. Before you buy, read the REIT's annual report or fact sheet to understand what it owns, where those properties are located, and how much debt it carries. The REIT's website usually has these documents, or you can find them on the SEC's EDGAR database.

Buying individual REITs requires more research than buying a fund, but it lets you tailor your holdings to your views. If you believe apartment demand will rise in a particular region, you can buy a REIT focused on that market. If you want to avoid retail properties because you think shopping centers are declining, you can skip those REITs entirely.

Buying REIT mutual funds and ETFs

REIT mutual funds and ETFs are simpler if you want instant diversification without picking individual companies. Search for the fund by name or ticker in your brokerage, enter the dollar amount you want to invest (not the number of shares), and place the order. ETFs trade during market hours like stocks, so your order fills at the current price. Mutual funds trade once per day after the market closes, so your order fills at that day's closing price.

Common REIT ETFs include the Vanguard Real Estate ETF (VNQ), which tracks the MSCI US REIT Index and holds over 150 REITs, and the iShares US Real Estate ETF (IYR), which tracks the Dow Jones US Real Estate Index. Both charge annual expense ratios around 0.12%, meaning you pay roughly $12 per year for every $10,000 invested. Actively managed REIT mutual funds typically charge 0.5% to 1% annually, which is higher but may offer the manager's stock-picking edge — though most REIT mutual funds do not consistently beat index-tracking ETFs over long periods.

If you want exposure to specific property types — apartments, industrial warehouses, healthcare facilities, data centers — specialized REIT ETFs exist for each. The Vanguard Apartment REIT ETF (APTS) focuses on residential, while the Vanguard Industrial Real Estate ETF (VGSLX) focuses on warehouses. These narrower funds carry more concentration risk than broad REIT funds, so they suit investors with a specific conviction about a property type's future.

Understanding REIT dividends and taxes

REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends. This means REIT dividends are typically higher than stock dividends, often in the 3% to 5% range, though this varies by REIT and market conditions. You receive these dividends quarterly or monthly depending on the REIT.

The tax treatment of REIT dividends is different from stock dividends. Stock dividends are usually taxed as capital gains (15% to 20% for most investors), but REIT dividends are taxed as ordinary income at your full tax rate (up to 37% federally, plus state taxes). This makes REITs more tax-efficient inside a tax-advantaged account like an IRA, where dividends are not taxed annually. If you hold REITs in a taxable account, you will owe income tax on the dividends each year even if you reinvest them.

When you sell a REIT share or fund for more than you paid, you owe capital gains tax on the profit. Long-term capital gains (from holdings over one year) are taxed at the lower capital gains rate, while short-term gains are taxed as ordinary income. Keep records of your purchase price and sale price so you can calculate your gain or loss accurately.

Building a REIT allocation into your portfolio

REITs do not move in lockstep with stocks and bonds, which makes them useful for diversification. When stock markets fall, real estate sometimes holds up better because people still need places to live and work. When interest rates rise, REITs can struggle because higher rates make their debt more expensive and reduce the appeal of their dividends compared to bonds. This means REITs add a different source of risk and return to a portfolio.

A common allocation is 5% to 15% of your portfolio in REITs, depending on your age, risk tolerance, and goals. Younger investors with longer time horizons might use 10% to 15%, while those closer to retirement might use 5% to 10%. If you are building a diversified portfolio, a broad REIT ETF like VNQ or IYR is simpler than picking individual REITs, and it costs less than an actively managed mutual fund.

You can add REITs gradually by investing a fixed amount each month, which smooths out the impact of price swings. Or you can invest a lump sum if you have cash available and believe REITs are attractively priced. Either way, the key is to start with a clear sense of how much of your portfolio you want in real estate and stick to it.

Common mistakes to avoid

The most common mistake is buying REITs solely for their high dividends without understanding the underlying real estate. A REIT with a 6% dividend might be attractive on the surface, but if the properties are aging, the debt is high, or the market is oversupplied, the dividend could be cut. Always read the REIT's financial statements or fact sheet before you buy.

Another mistake is holding too many individual REITs without diversification. If you buy five REITs focused on retail properties in the same region, you have concentration risk — a downturn in that market or property type will hurt all five holdings. A single broad REIT ETF gives you exposure to hundreds of properties across different types and geographies with one purchase.

A third mistake is ignoring taxes. Holding REITs in a taxable account and reinvesting the dividends means you pay income tax on money you did not receive in cash. Moving REITs to an IRA or other tax-advantaged account can cut your tax bill significantly over time.

Frequently Asked Questions

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

No. Individual REIT shares typically cost $20 to $100 per share, so you can start with a small amount. REIT ETFs and mutual funds have no minimum investment beyond the share price, which is usually $50 to $150. Many brokerages let you invest as little as $1 if you set up automatic monthly contributions.

Can I hold REITs in a retirement account like a 401(k)?

Yes. Most 401(k) plans offer REIT mutual funds or ETFs as investment options. If your plan does not, you can hold REITs in an IRA instead. Holding REITs in a retirement account is often better than holding them in a taxable account because REIT dividends are taxed as ordinary income.

What is the difference between a REIT ETF and a REIT mutual fund?

REIT ETFs trade on stock exchanges like stocks and typically charge lower fees (0.1% to 0.2% annually). REIT mutual funds are actively managed and trade once per day, with higher fees (0.5% to 1% annually). ETFs are simpler and cheaper for most investors, though some actively managed mutual funds may outperform over specific periods.

Can REITs lose money?

Yes. REIT share prices fall when real estate values decline, when interest rates rise, or when the REIT's income drops. A REIT focused on a struggling property type or region can underperform for years. Broad REIT ETFs are less volatile than individual REITs, but they can still lose 20% to 30% in a severe downturn.

Should I buy individual REITs or a REIT fund?

A REIT fund is simpler and requires less research if you are new to investing. Individual REITs make sense if you have strong views about specific property types or markets and want to research companies. Most investors benefit from starting with a broad REIT ETF and adding individual REITs only if they develop expertise.