REITs: Own Real Estate Without Buying a House
A REIT lets you invest in real estate like you'd buy a stock. Here's what that means in plain English — and whether it makes sense for you.
A guy I know — retired Army, lives out near Hereford — called me last spring. He'd sold a rental property and had some cash sitting in a savings account earning almost nothing. His financial advisor mentioned REITs, and he wanted to know if I thought they were legit or just another Wall Street gimmick.
Honest answer: they're real, they're useful, and they're worth understanding. But they're not the same as owning property. Let me explain.
What a REIT Actually Is
REIT stands for Real Estate Investment Trust. It's a company that owns real estate — shopping centers, apartment complexes, warehouses, hospitals, cell towers — and sells shares of itself to the public, just like a regular stock.
When you buy shares in a REIT, you're buying a slice of that company's real estate portfolio. You didn't sign a deed. You didn't get a mortgage. You just own shares, and those shares pay you dividends — regular cash distributions from the rental income the properties generate.
By law, REITs have to pay out at least 90% of their taxable income to shareholders. That's what makes them attractive to income-focused investors.
A Few Concrete Examples
Example 1 — The apartment investor. Say you believe strongly in the rental housing market in the Sun Belt but you don't want the hassle of being a landlord in Tucson or Sierra Vista. You could buy shares in a publicly traded REIT that owns thousands of apartment units across Arizona, Texas, and Nevada. You get exposure to that market without ever unclogging a drain.
Example 2 — The diversifier. A Fort Huachuca family is PCSing out in two years and doesn't want to buy a house locally. But they want their money doing something smarter than sitting in a checking account. They could put a portion into a healthcare REIT that owns medical office buildings — totally different from residential real estate, steady income, and they can sell those shares anytime.
Example 3 — The small-dollar entry point. Maybe you've got $500 and you want to start building wealth through real estate. You can't buy a house in Bisbee for $500. But you can buy shares in a REIT for that amount and start learning how real estate investments work while your money earns dividends.
What REITs Are NOT
This is where I pump the brakes a little.
- They don't build equity the same way. When you own a home or a rental property, you're paying down a mortgage and building equity in a hard asset. With a REIT, you own shares. Share prices go up and down.
- You have no control. You can't decide to renovate unit 4B or raise rents or sell the building when the market peaks. Management makes all those calls.
- They can drop fast. During the 2020 COVID shutdowns, commercial REITs — especially retail and hotel REITs — got hammered. Real estate you physically own doesn't fluctuate like that day to day.
- Dividend taxes are ordinary income. Unlike qualified stock dividends, most REIT dividends get taxed as regular income. Talk to your CPA before you dive in.
Where REITs Fit in the Bigger Picture
I'm a REALTOR®, not a financial advisor — so I'll tell you what I tell all my clients who ask about this. REITs are a tool. A useful one for diversification, passive income, or getting real estate exposure without a down payment. But they're not a replacement for owning actual property if building long-term, tangible wealth is your goal.
For a lot of military families and rural buyers in Cochise County, the best investment they ever made was a modest house they bought, held for a few years, and sold at a gain. That's still hard to beat.
Your Next Step
If REITs are on your radar, spend 30 minutes on Investopedia reading about the different types — equity REITs, mortgage REITs, and hybrid REITs. Then have a direct conversation with a fee-only financial advisor before you buy anything.
And if you're still trying to decide between a REIT and buying an actual property here in Southern Arizona, give me a call. I'm happy to walk through the numbers with you honestly — even if the answer turns out to be "not yet."