Can you get wealthy with REITs?
If you invested more money into REITs or those producing a higher average annual return, you could become a millionaire even faster.
Steady dividends: Because REITs are required to pay 90% of their annual income as shareholder dividends, they consistently offer some of the highest dividend yields in the stock market. That makes them a favorite among investors looking for a steady stream of income.
| TIME PERIOD | S&P 500 (TOTAL ANNUAL RETURN) | FTSE Nareit ALL EQUITY REITS (TOTAL ANNUAL RETURN) |
|---|---|---|
| Past 25 years | 7.6% | 11.4% |
| Past 20 years | 9.7% | 10.4% |
| Past 10 years | 12.0% | 9.5% |
| Past 5 years | 15.7% | 10.3% |
For investors seeking a steady stream of monthly income, real estate investment trusts (REITs) that pay dividends on a monthly basis emerge as a compelling financial strategy. In this article, we unravel two REITs that pay monthly dividends and have yields of 6% or more.
| Company (ticker symbol) | Sector | Dividend yield |
|---|---|---|
| KKR Real Estate Finance Trust (KREF) | Mortgage | 14.0% |
| Two Harbors Investment (TWO) | Mortgage | 14.0% |
| Ares Commercial Real Estate (ACRE) | Mortgage | 13.8% |
| Brandywine Realty Trust (BDN) | Office | 13.6% |
Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.
Getting out of a non-traded real estate investment trust, or REIT, can often be rather difficult and expensive. Once a REIT is closed to new investors, the board of directors of the REIT can suspend the redemption policy.
Is Five Years the Standard "Hold" Time for a Real Estate Investment? Real estate investment trusts (REITS) and other commercial property investment companies frequently target properties with a five-year outlook potential.
To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
Since they aren't publicly available and don't register with the SEC, it's difficult to pinpoint specific investment minimums. However, investment firm Edward Jones says minimum investments for private REITs can range from $1,000 to $50,000.
How often do REITs pay you?
REITs and stocks can both pay dividends, usually on a monthly, quarterly, or yearly basis. Some investments will also offer special dividends, but they're unpredictable.
In most cases, REITs utilize a combination of debt and equity to purchase a property. As such, they are more sensitive than other asset classes to changes in interest rates., particularly those that use variable rate debt. When interest rates rise, REITs share prices can be prone to volatility.
While a 90% annual dividend payout is required by law and IRS regulation, different REITs pay on different schedules within that requirement. How often are REIT dividends paid? Law requires that REITs pay required dividends at least once annually; however, many REITs pay quarterly or monthly.
Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.
| # | Name | C. |
|---|---|---|
| 1 | Redefine Properties 1RDF.JO | 🇿🇦 |
| 2 | Prologis 2PLD | 🇺🇸 |
| 3 | Fortress REIT 3FFA.JO | 🇿🇦 |
| 4 | American Tower 4AMT | 🇺🇸 |
How do I Invest in a REIT? An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).
REITs don't have to pay a corporate tax, but the downside is that REIT dividends are typically taxed at a higher rate than other investments. Oftentimes, dividends are taxed at the same rate as long-term capital gains, which for many people, is generally lower than the rate at which their regular income is taxed.
REITs have been wealth-creating machines over the years. Realty Income, Equity Lifestyle, and Prologis have all outperformed the S&P 500 over the long term. These well-built REITs should continue enriching their investors in the future. They have the potential to turn long-term, consistent investors into millionaires.
Investors can buy and sell shares of public REITs at any time during trading hours. With private REITs, on the other hand, investors may have to wait for a redemption event, which can occur quarterly or annually, before they can cash out their investment. Additionally, private REITs may charge redemption fees.
Reinvesting REIT dividends can help retirement savers grow their portfolio's investment, and historically steady REIT dividend income can help retirees meet their living expenses.
Are REITs passive income?
Publicly traded real estate investment trusts (REITs)
That makes them a great source of income. REITs are also a low-cost investment since shares of most REITs trade for less than $100 each. They're passive investments because you don't need to do any work other than research and follow the investment.
The Cheapest Option: REITs—$1,000 to $25,000 or more
They invest in real estate directly, either through property purchases or through mortgage investments. Many REITs specialize in a particular type of real estate or a specific region.
REITs must prioritize short-term income for investors
In exchange for more ongoing income, REITs have less to invest for future returns than a growth mutual fund or stock. “REITs are better for short-term cash flow and income versus long-term upside,” says Stivers.
The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec.
Because the REITs aren't publicly traded, the only way to withdraw money is to redeem shares.
