When you examine the early investments of your favorite investors, there is something they have in common: Real Estate. Investment gurus like Robert Kiyosaki teach the importance of investing in real estate to preserve capital and generate income. But let’s face it, not everyone can qualify for a mortgage or has $20K to make a down payment on a house.
This is where REIT ETFs come in. When you buy a REIT ETF, your single investment is buying a piece of hundreds of publicy traded companies that invest in real estate properties.
In this guide, we describe the Best REIT ETFs of 2021 and how you can invest in them today.
Where Can I Trade REIT ETFs?
When looking for a broker that suits your trading style, make sure the broker allows ETF trading. They should have this listed on their website or in the FAQs section. ETFs are a widely available asset class that trades like stocks, and so most brokers facilitate ETF trading.
What is a REIT ETF?
A REIT is a Real Estate Investment Trust. It is a type of company that owns and operates (or invests in) large amounts of commercial and residential properties.
An ETF is an exchange-traded fund made up of several underlying securities, for example, the common stock of companies that invest in real estate. ETFs provide a cheap way for investors to diversify and gain exposure to an entire industry by making a single investment.
Buying a house to rent out or sell on to someone else can be time-consuming and expensive. You have to find a suitable property, have savings for the down payment and closing fees, and struggle with the paperwork to get a mortgage from the bank. All of this can be a waste if you end up with a bad tenant or no tenant or buyer at all. While investing in real estate is almost always a sound investment as the asset class usually appreciates, putting all our eggs in one basket — in this case, one property — might not be the best idea.
REIT ETFs can help in a situation like this because buying a REIT ETF is like buying a small percentage of hundreds of houses, hospitals, and shopping malls.
Invest in REIT ETFs in 3 Steps
Open a Trading Account
Before you can begin your journey to financial freedom, you will need to open a trading account. Make sure to do your due diligence into which online broker best suits your needs as a trader. Be mindful of the funding fees and commissions that the broker may charge. At this step, you may need documents like proof of identification, proof of address, and a bank statement.
Choose a REIT ETF
Once your account is set up and funded, you are ready to trade. You can select your own REIT ETF to invest in on the trading platform, or you can choose one from the list of REIT ETFs highlighted in this guide.
Place Your Trade
When you decide which REIT ETF you would like to buy, you can place a market order to buy the ETF at the current price or place a limit order to buy the ETF at a specific price. You should see the purchased ETF in your open positions tab on the platform.
Best REIT ETFs to Buy Now
After assessing the long term and short term returns, the total assets under management, and the current market conditions, the top 10 REIT ETFs are as follows:
- iShares Global REIT ETF (REET)
- Vanguard Global ex-US Real Estate ETF (VNQI)
- Vanguard Real Estate ETF (VNQ)
- Schwab US REIT ETF (SCHH)
- iShares Mortgage Real Estate ETF (REM)
- VanEck Vectors Mortgage REIT Income ETF (MORT)
- Global X SuperDividend REIT ETF (SRET)
- Infracap REIT Preferred ETF (PFFR)
- Invesco KBW Premium Yield Equity REIT ETF (KBWY)
- Direxion Daily MSCI Real Estate Bull 3x Shares (DRN)
1. iShares Global REIT ETF (REET)
REET is an ETF issued by iShares that tracks a global, market-cap weighted index of companies that invest, own, and operate in international real estate. REET is one of the largest REIT ETFs by assets under management (AUM), with $3.0Bn under management and an average daily trading volume of $16.85M at the time of writing. REET returned 44.72% in the last year and 17.41% so far (to May) in 2021. The ETF is also sufficiently diversified, with 326 holdings in the fund.
2. Vanguard Global ex-US Real Estate ETF (VNQI)
Issued by another ETF giant, Vanguard, VNQI tracks a market-cap weighted index of several companies that invest in real estate outside of the US. This ETF provides a means of diversification for investors that might be over-exposed to US markets, with 688 underlying securities and 51.37% of its holdings located in Japan, Hong Kong, and Australia. VNQI has an AUM of $5.1Bn at the time of writing, it returned 76.75% in the last year, and is up 32.05% in 2021 (to May).
3. Vanguard Real Estate ETF (VNQ)
VNQ is one of the best ETFs that focuses solely on real estate in the US. It is the largest REIT ETF by AUM of $37.9Bn and has returned 37.58% in the last year and 8.56% for the 2021 year thus far (to May). The fund is well-diversified with 175 underlying holdings and it currently has a dividend yield of 3.31%. What also makes VNQ one of the best ETFs is its low expense ratio of 0.12%.
4. Schwab US REIT ETF (SCHH)
SCHH is another ETF that tracks a market-cap weighted index of US REITs excluding mortgage REITs and hybrid REITs. The fund has an AUM of $5.6Bn and an average daily trading volume of $20.7M at the time of writing. As of May 2021, SCHH has a one-year return of 37.81% and a year-to-date total return of 15.67%. Added to this, the fund has a dividend yield of 2.24% and an expense ratio of 0.07%.
5. iShares Mortgage Real Estate ETF (REM)
REM is a specialized ETF that focuses its investments in residential and commercial mortgage REITs originated in the US. While the fund is relatively small with an AUM of $1.6Bn, the most outstanding feature is the 6.02% dividend yield that it pays to investors. REM pays dividends quarterly, but it has an expense ratio of 0.48%, which is not the best in the ETF world.
Expert Tip on Investing in REIT ETFs“ As REIT ETFs are high yield investments, they provide an excellent tool for dividend investing. A good tip is to reinvest your dividends by buying more REIT ETFs, to compound your returns. REIT ETFs provide a way for you to start your dividend investing without having a high-value trading account. ”- Mir Kamrul
Why Trade REIT ETFs?
In 2020, the global REIT industry returned 30%, with an average dividend yield of 4%. REIT ETFs are an excellent investment to include in your portfolio if your objective is capital appreciation and income generation. They also provide the perfect tool for diversification, so they’re suitable for retirement accounts as well as regular trading accounts.
Frequently Asked Questions
AUM means assets under management. This is the amount of money the fund has available to buy the common stock of companies that own real estate.
An expense ratio is an amount that an investment company charges investors to manage the fund.
The dividend yield is the dollar dividend payments to shareholders divided by the share price. For example, a stock priced at $50 that pays $2 in dividends has a 4% dividend yield. This matters because it represents the amount the company pays to investors from the profit it makes.
Unlike common stock that most retail investors hold, preferred stock usually has no voting rights but pays a fixed dividend to shareholders. This dividend must be paid before paying the common stockholders.
The average trading volume is the daily average number of shares traded in the last 30 days multiplied by the dollar price of the share. This matters because it represents the liquidity of the ETF, or how quickly the market may execute your order to buy or sell an ETF. A good average trading volume is at least 50K shares traded a day.
By diversifying your investments, you reduce your exposure and thus the riskiness of your portfolio. This means you should lose less money if the market crashes than if you had all of your money in one investment.