How to Invest Wisely in Real Estate Stocks: A Guide

Mike and Vero demystify real estate investment trusts (REITs), exploring how they work, where they’re struggling, and which ones still make sense in a dividend growth portfolio.

Learn how to analyze REITs using the right metrics, spot red flags, and know if they belong in your portfolio at all.

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You’ll Learn

Why REITs Have Struggled Lately

REITs have faced several headwinds in recent years that have hurt their performance and shaken investor confidence.

Interest rates have risen quickly, increasing borrowing costs and limiting growth.
Some REITs overleveraged during the low-rate era and now face refinancing pressure.
Dividend growth has slowed across the sector.
REITs aren’t “exciting,” and that lack of hype affects their market appeal.

You Can Lose Money in Real Estate
While real estate feels tangible and safe, REITs (and direct property investing) are not immune to losses.

The illusion of safety that comes with owning “real assets” can lead to poor due diligence.
Rental properties can bring unexpected surprises, such as bad tenants or significant repairs.
Even brick-and-mortar assets can suffer from poor management or economic shifts.

The Types of REITs and Who’s Been Hit the Hardest
Not all REITs operate the same way—some sectors have been hit much harder than others.

Equity REITs buy and manage properties; mortgage REITs finance real estate deals.
Mortgage REITs were hit hard by interest rate volatility and duration mismatch.
Office REITs continue to suffer from remote work and empty spaces.
Second-tier retail REITs struggle with e-commerce, while top-tier malls fare better.

The Strengths and Weaknesses of REITs
REITs can offer attractive income and simplicity, but investors must weigh that against their limitations.

Strengths: tangible assets, income distribution, monthly payments, perceived stability.
Weaknesses: reliance on financing, dilution from issuing new units, slower growth, and less flexibility.

How to Analyze REITs with the Dividend Triangle
REITs don’t follow standard accounting metrics, so investors need to adapt their approach.

Replace EPS with FFO or AFFO per unit when evaluating profitability.
Use FFO-based payout ratios, not EPS-based ones.
Watch for red flags in NAV trends and heavy refinancing activity.

The Tax Implications of REITs
REIT distributions are not the same as dividends and can affect your tax planning.

Distributions may include return of capital, lowering your adjusted cost base.
Capital gains are deferred but triggered upon sale.
Holding REITs in tax-sheltered accounts helps avoid complications.

Who Should and Shouldn’t Invest in REITs
REITs suit specific investor profiles better than others—especially income-focused ones.

Great for those seeking monthly income and portfolio stability.
Not ideal for investors prioritizing high growth and capital appreciation.

The REIT Industries Worth Watching
Some REIT sectors still show potential, depending on their business model and tenants.

Apartment REITs benefit when people can’t afford homes.
Industrial REITs offer stability with long leases and tenant outsourcing.
Data center REITs (like Equinix) are tied to the AI boom.
High-quality retail REITs still have a role, especially when well-diversified.

What Makes a REIT Well Managed
Strong leadership and a strategic plan make all the difference in long-term performance.

Clear focus and a strong tenant base are essential.
Watch lease structures, occupancy rates, and rent collection.
Tenant and geographic diversification reduce risk.
Look for growth opportunities, such as asset recycling and development pipelines.

How to Invest in REITs—Step by Step
Mike wraps up with a checklist to help investors decide which REITs deserve a spot in their portfolios.