May 3, 2023

How to Make Money in REITs: A Beginner's Guide

You do not need a lot of expertise or know-how when it comes to investing in real estate; all you need is an understanding of what a REIT is and how it works. That is where this guide comes in. This article is going to teach you everything you need to know about investing in REITs and how you can make money off them. Let us dive into the world of real estate investing!


If you want to get your feet wet in the investing world but are not ready to commit to buying stocks, bonds, or mutual funds outright, REITs are a great place to start. REIT stands for Real Estate Investment Trust, and it is an easy way for anyone with money to invest to benefit from the real estate industry without owning any physical property themselves.

You do not need a lot of expertise or know-how when it comes to investing in real estate; all you need is an understanding of what a REIT is and how it works. That is where this guide comes in. This article is going to teach you everything you need to know about investing in REITs and how you can make money off them. Let us dive into the world of real estate investing!

If you have any questions, throughout this blog, please feel free to reach out to a financial planner at Vincere Wealth Management.

What Are REITs and How Do They Operate?

You have heard everyone talking about REITs, and you want to know: what exactly is a REIT, and how do they operate?

REITs — or Real Estate Investment Trusts — are companies that own and manage income-producing real estate. By pooling together many investors’ money, REITs acquire properties and provide shareholders with a portion of the rental income from the assets. That income typically comes from office buildings, apartments, hotels, retail spaces and even medical facilities.

REITs are made up of both public-traded companies – which are traded on the stock exchange like any other asset - and private entities which only institutional investors can participate in. Whether public or private, all REITs have one thing in common: they must distribute at least 90% of their taxable income to shareholders in the form of dividends. This makes them attractive investments for those looking to generate passive income.

Types of REITs and How They Differ

Ready to invest in REITs? You need to know the different types available and how you can make money from them. There are five main types of REITs and each has its own set of characteristics and investment strategies:

  • Residential - REITs are companies that own and operate residential real estate. Investors in residential REITs typically look for long-term appreciation in the value of their investment.
  • Office - REITs own buildings that are leased to commercial tenants and invested in for the purpose of generating income through rent payments. Office REITs usually have longer-term leases that provide reliable income streams.
  • Retail - REITs are typically focused on shopping malls, strip centers, outlet stores, lifestyle centers, and specialty stores. They generate revenue through rental income, store sales, and other sources such as parking revenues or advertising income.
  • Industrial - REITs invest in warehouses, distribution centers, self-storage facilities, manufacturing facilities, and other industrial properties. These investments usually have higher returns due to their generally lower level of risk compared to residential or office investments.
  • Healthcare - REITs specialize in healthcare facilities such as hospitals, nursing homes, senior living facilities, medical offices, laboratories, and outpatient clinics. They tend to be less volatile than other forms of REITs due to the long-term leases they offer tenants which provide them with a steady stream of income over time.

Advantages and Disadvantages of Investing in REITs

If you are considering investing in REITs, you should know the advantages and disadvantages of doing so.

REITs have many advantages, such as:

  • Specialized investments: REITs give investors access to specialized investments that may not be available to them otherwise.
  • Diversification: REITs offer the ability to diversify a portfolio and reduce the risk profile associated with investing in stocks alone.
  • Liquidity: Investing in REITs is relatively easy and can be liquidated relatively quickly if needed.
  • Profits and dividends: Many REITs pay out high dividends and offer great potential for profits over time.

However, there are also disadvantages to consider when investing in REITs including:

  • High fees and taxes: Investing in REITs comes with high fees and taxes, especially when compared to other types of investments.
  • Complexity: Navigating the different types of REITs can be challenging, making it difficult for new investors to know how to invest properly.
  • Lack of control: Since investors do not have direct control over the real estate holdings that make up REITs, they are at the mercy of market forces when it comes to returns on their investments.

How to Evaluate a REIT Before Investing in It

When it comes to evaluating a REIT before investing in it, there are five key factors to consider. These are the company’s track record, its risk profile, its portfolio of assets, its dividend payout and potential growth potential.

Track Record

It is important to look at the company's track record, such as its financial performance over the past several years and any potential issues with regulators or investors. This will give you an indication of how well-managed the REIT is and whether it has a reliable management team behind it.

Risk Profile

Every REIT comes with some level of risk. It is important to evaluate the risk profile of each individual REIT before investing in it. Consider things like the return on equity (ROE) and the REIT’s debt levels compared to its income streams. This will give you an idea of how risky the investment could be and how likely you are to get your money back if things go south.

Asset Portfolio

The type and quality of a REIT's assets is another important factor to evaluate when considering investing in one. A good asset portfolio should include some low-risk investments such as high-quality bonds or real estate, as well as higher-risk but potentially more rewarding investments such as venture capital funds or high-yield stocks or bonds.

Dividend Payout

The dividend payout is also an important factor when selecting which REIT to invest in. Look for a consistent dividend payout that can provide consistent returns over time. If a particular REIT does not have a steady dividend payout or does not have strong cash flow from operations, then this could be a red flag indicating potential risks and instability in the investment. It is important to carefully analyze the financial health of a REIT before making any investment decisions.

Strategies for Buying REIT Stocks

The fifth, and arguably the most important, thing to know about investing in REITs is the various strategies you can use to buy stocks. Though there are several strategies out there, here are a few of the most popular:

Value Investing

Value investing is one of the oldest investment strategies and involves buying stocks that appear to be undervalued, or selling those that seem overvalued. This strategy works best for REIT investors who have a long-term goal and are not too concerned with short-term market fluctuations.

Growth Investing

Growth investing involves buying stocks that have potential for future price appreciation due to their growth prospects. This can be done by researching companies for their future sales potential and past performance. REIT investors who go with this strategy should look at factors like the company's dividend payout ratio and its ability to raise dividends in coming years.

Technical Analysis

Technical analysis involves using charts and other indicators to predict future price movements of a stock. While this strategy is not applicable to all types of investments, it is still useful when it comes to REITs since they tend to be sensitive to market trends and news. However, technical analysis requires a deeper understanding of the market, so it is better suited for experienced investors than beginners. By taking these different strategies into account when buying REIT stocks, you can make sure that you are investing in a lucrative asset class in the long run.

Diversifying Your REIT Portfolio

Given the complexities of REITs, diversifying your portfolio is vital for success. When you diversify, you spread out your investments among multiple REIT sectors so that if one sector crashes, your losses will be limited as other investments may make up for the losses in that sector.

Here are five types of REITs you can add to your portfolio:

  • Equity REITS: Equity REITS are the most common type, and they focus on acquiring, developing and managing properties—any kind of property—that generate income from rental fees.
  • Mortgage REITs: Mortgage REITs invest in mortgages and mortgage-backed securities related to mortgages for commercial real estate. This type of REIT can hedge against interest rate fluctuations.
  • Hybrid REITS: Hybrid REITS combine both equity and mortgage investments in their portfolios since they are more flexible with the types of real estate they can own and the financing approaches they can use to purchase them.
  • Preferred Equity/Mezzanine Debt: Preferred equity is a form of debt financing that gives investors a higher return on investment than typical equity but less return than typical debt investments would give. Mezzanine debt is more expensive debt financing which grants investors a higher return but also carries higher risks since it’s senior to equity but subordinated to traditional secured debt.
  • Infrastructure/Specialty REITs: Infrastructure/specialty REITs focus on massive or unique projects like cell towers, power plants, energy pipelines or data centers—projects that require large capital investments over long time periods before returns can be generated from them.


You now have an understanding of the 5 types of REITs and what to look for when investing in them. Investing in REITs can be a great way to diversify your portfolio and generate long term passive income. However, before investing in any kind of security, always do your research and speak to a financial advisor to make sure it is the right move for you. With this knowledge, you can begin to make thoughtful, strategic investments and make the most of your money.

Speak with an advisor at Vincere Wealth Management to get started on the journey of building your wealth through real estate investing!

‍About the Author

As Managing Partner of Vincere Wealth, Josh assists clients in navigating financial challenges and making sound financial decisions. Having someone guide you in making sensible financial decisions today can have a substantial impact on your future financial wellbeing. Josh takes great pride in guiding customers through the complexities of taxes, real estate, businesses, employer stock and international financial planning.

Reach out to Josh today.

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