You typically think of investment diversification in terms of cash, stocks, and bonds. But you might be reading this while sitting in a form of diversification that you’ve never considered: real estate. Apartment buildings, office complexes, medical facilities, shopping malls, or any other form of commercial property could be part of a real estate investment trust, or REIT.
A REIT is a corporation that pools shareholders’ money and uses it to invest in commercial real estate, like the ones mentioned above. Most REITs generate income by renting those spaces and distribute at least 90% of their profits to shareholders in the form of dividends.
If certain conditions occur, REITS could see a rebound over the next few yearsDisclosure 1. Investors looking to buy in at a discount will be watching to see if the Federal Reserve cuts interest rates as it did in the second half of 2025. Falling or flat interest rates help a REIT access new loans more affordably and pay down existing debt more quickly at the same time that (hopefully) property values go up. The margin of profit on rents from those holdings would increase, and the REIT would then return stronger dividends to shareholders. And even when property values hold steady, interest rate drops help the bottom line for this investment area.
How can REITs help me?
REITs offer:
- Diversification: REITs often move in the opposite direction of other investments—if stocks are going down, REITs are often going up.
- Potential protection from inflation: When commercial property owners raise rents in response to inflation, their income increases, and so does the REIT’s value.
- Tax efficiency: A portion of a REIT’s dividends is classified as long-term capital gains and is taxed not as ordinary income but at the long-term capital gains rate (15% for most taxpayers and 20% for income in excess of certain thresholds). REITs can also make sense in a tax-advantaged account like an IRA, where their relatively high income stream can be tax-deferred until withdrawal.
Truist takes an evidence-based approach for evaluating REITs and all other assets in your investment portfolio. You and your advisor can work together to set to the side emotion about short-term market fluctuations and stay focused on a long-term strategy for decision making.
Most REITs generate income by renting those spaces and distribute at least 90% of their profits to shareholders in the form of dividends.
What are my REIT risks?
- As real estate markets go, so go REITs. If the entire market experiences a downturn and property owners have to decrease rents or absorb increased vacancies, then shareholder income will shrink.
- Similarly, if a REIT is tightly focused in one property type or market that faces a financial drop, returns will be equally impacted.
You can reduce your risk exposure by investing in REITs that are diversified both geographically and by property type.
Who can help me invest in REITs?
A broker can help you buy REIT shares the same way you would buy stocks. You can also invest in mutual funds or exchange-traded funds (ETFs) that invest in REITs. Before you invest, you should consult with your advisor to determine if REITs are appropriate for your portfolio and, if so, how much you should invest.
ETF and mutual fund values will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. ETFs trade like stocks on the open market, which, in most cases, involves a commission.
Investors should consider the investment objectives, risks, and charges and expenses of an ETF or mutual fund carefully before investing. A prospectus, which contains all this and other information, can be obtained from your financial professional. Please read the prospectus carefully prior to investing.
Diversification does not ensure against loss and does not assure a profit. Past performance does not guarantee future results. REITs are subject to risks, including market changes, natural disasters, and interest rate increases. The dividend income received from REITS isn’t tax advantaged like corporate dividend income.
Interested in learning more about REITs?
Talk to your Truist Wealth advisor.
