If you want to invest in real estate without becoming a landlord, Real Estate Investment Trusts (REITs) could be your solution in 2023. They allow you to own shares of income-producing properties like apartments, shopping centers, and offices—without buying or managing real estate directly.
With the economy shifting and inflation still influencing investment choices, REITs offer an accessible way to diversify your portfolio and generate passive income.
What Is a REIT?
A REIT is a company that owns, operates, or finances income-generating real estate. To qualify as a REIT, the company must follow specific rules—most importantly, it must return at least 90% of its taxable income to shareholders in the form of dividends.
This structure makes REITs one of the highest-yielding assets in the stock market, ideal for income-focused investors.
REITs trade on major stock exchanges, just like regular stocks. You can buy and sell them through your brokerage account.
Types of REITs Available in 2023
There are several categories of REITs, each focusing on different types of property:
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Equity REITs: These own and manage real estate directly. You earn money through rent income and property value appreciation.
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Mortgage REITs (mREITs): These invest in mortgages or mortgage-backed securities and make money through interest.
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Hybrid REITs: A mix of equity and mortgage REITs.
Within these categories, REITs specialize in sectors like:
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Residential (apartment complexes)
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Retail (shopping malls)
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Industrial (warehouses, logistics)
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Healthcare (hospitals, medical offices)
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Data centers (cloud storage facilities)
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Infrastructure (cell towers, energy transmission)
Why Invest in REITs in 2023?
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High Dividend Yields
REITs are required to pay out 90% of taxable income as dividends. In 2023, many offer dividend yields of 4%–8%, outperforming traditional savings accounts and even many dividend-paying stocks. -
Inflation Hedge
Real estate values and rents often rise with inflation. REITs provide a natural hedge, helping your portfolio preserve purchasing power. -
Diversification
Adding REITs introduces real estate exposure without the need to buy physical property. This balances risk if your portfolio is heavy in stocks or bonds. -
Accessibility
You can invest in REITs with just $10–$100, using platforms like Fidelity, Schwab, or Robinhood. No large capital or property management skills required.
REIT Performance in 2023
REIT performance in 2023 is mixed, reflecting broader economic uncertainty. Rising interest rates challenge the borrowing environment for property acquisitions. However, sectors like industrial, residential, and healthcare REITs remain resilient due to high demand.
Office REITs, on the other hand, face ongoing headwinds due to hybrid work and high vacancy rates in some markets.
Investors are shifting toward REITs with strong balance sheets, reliable cash flow, and exposure to growing sectors.
REIT vs. Buying Property Directly
Buying real estate offers more control, but it also comes with property taxes, maintenance, vacancies, and large upfront costs.
REITs offer:
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Liquidity (buy/sell anytime)
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Lower entry cost
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Passive income without responsibility
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Portfolio diversity
But they also expose you to stock market volatility, and you have no control over the specific properties.
How to Buy REITs
There are three main ways:
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Publicly Traded REITs
Buy individual REIT stocks like Realty Income Corp (O), Prologis (PLD), or Welltower (WELL). -
REIT ETFs
Funds like VNQ or SCHH hold dozens of REITs, offering sector-wide exposure and diversification. -
REIT Mutual Funds
Actively managed funds that include a basket of REITs, often with higher fees.
Choose based on your risk tolerance, desire for diversification, and interest in active vs. passive management.
REITs in a Retirement Account
REITs fit well in tax-advantaged accounts like Roth IRAs or 401(k)s. Since they pay out high dividends (taxable in regular accounts), keeping them in a retirement account can reduce your tax burden.
Many brokerages allow you to invest in REIT ETFs inside your retirement plan.
Risks to Consider
REITs aren’t risk-free. Potential downsides include:
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Interest Rate Sensitivity: As rates rise, REIT prices may fall. Higher rates mean increased borrowing costs for REITs and more attractive returns elsewhere.
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Sector Risk: Office and retail REITs may underperform due to remote work and changing shopping habits.
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Dividend Cuts: In economic downturns, REITs may reduce dividends, especially if tenants can’t pay rent.
Diversify your holdings and monitor economic conditions to manage these risks.
How Much of Your Portfolio Should Be in REITs?
Most financial advisors recommend allocating 5% to 15% of your portfolio to REITs. If you’re income-focused or close to retirement, you might lean higher.
If you’re risk-averse or already own physical real estate, a smaller allocation may make more sense.
Final Thoughts
REITs offer an excellent opportunity to invest in real estate in 2023 without the hassle of managing property. With high dividends, inflation protection, and low entry costs, they’re a strong option for both beginners and seasoned investors.
Start by researching different REIT sectors. Use ETFs to diversify. Reinvest dividends. And monitor interest rates to understand price movements.
With a well-balanced approach, REITs can provide reliable passive income and strong portfolio growth over the long term.