A REIT is a company that owns income-producing real estate and pays most of its profit to shareholders. An ETF is a basket that holds many investments at once. They are not rivals: a REIT ETF holds dozens of REITs in one purchase, which spreads out the risk of any single landlord.
How they stack up
General ranges, not a rating of any specific investment. Yields and rates change over time.
Which fits when
- You want higher regular income than most stocks pay
- You want real estate exposure without being a landlord
- You can hold through bigger price swings when interest rates move
- You want instant variety with one purchase
- You want low fees and easy buying and selling
- You want a foundation that tracks the whole market
What a REIT actually is
- RentTenants pay the REIT
- CostsThe REIT pays its bills
- 90%+Paid out to you
A real estate investment trust owns or finances buildings that earn rent: apartments, warehouses, cell towers, shopping centers, data centers. To keep its special tax status, a REIT has to pay out at least 90% of its taxable income to shareholders. That rule is why REIT payouts tend to be higher than what most stocks pay.
You buy a REIT the same way you buy a share of stock, in any brokerage account. You collect a slice of the rent without fixing a single leaky faucet.
What an ETF actually is
- $100You invest
- 1 ETFOne purchase
- 100sOf companies inside
An exchange-traded fund is a container. One share of an ETF can hold hundreds or thousands of stocks, bonds or REITs. Some ETFs track the whole stock market, some focus on dividend payers, and some hold only REITs.
Because one purchase spreads your money across many holdings, a single company having a bad year has far less effect on you.
You do not have to choose. Many investors own a broad market ETF as their foundation and add a REIT ETF for extra income. Firreo’s plan works the same way: real estate is one slice next to broad market, dividend, higher yield and Treasury backed funds.
Questions people ask
Is a REIT an ETF?
No. A REIT is a single company that owns real estate. An ETF is a fund that holds many investments. A REIT ETF is a fund that holds many REITs.
Do REITs pay more than ETFs?
REITs usually pay more than a broad stock market ETF, often about 3 to 5% a year compared with about 1 to 2%. Payouts change over time and are not promised.
How are REIT dividends taxed?
Most REIT dividends are taxed as ordinary income rather than at the lower qualified dividend rates, though a special deduction can lower the tax on part of them. Holding REITs in a retirement account avoids the yearly tax.
More side-by-sides
Keep reading: Stocks, ETFs, Mutual Funds and REITs · Is Real Estate Investing Right for You?
For education only and not personalized investment, tax or legal advice. Ranges are general illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal. Tax rules change; check current IRS figures or a tax professional for your situation.