The Best REITs to Invest In 2023
The Best REITs to Invest In 2023

The Best REITs to Invest In 2023

With real estate valuations starting to come down from the pandemic, investors are now looking for money moves in real estate. Here are some to consider.

Noah Weidner

Updated Feb 7, 2023

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Real Estate

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Land is a commodity that they’re not making a whole lot more of—making it a popular investment among those growing their share of the wealth.

VNQ is an ETF that invests in real estate developers and investment trusts—and it has averaged monster annual returns of 6.4% over the last 10 years.

Real estate has been in a tenuous time since 2022. Rising interest rates, the end of stay-at-home orders, and rocky market conditions have put the boom of the last few years on the rocks.

Thankfully, there’s little to worry about once you get past the media alarmism. While publicly-traded real estate investment trusts (REITs) fell over 20% in 2022, property valuations have only recently begun to reflect those declines.

Those falling prices, along with a shortage of homes and narrow price points, means that now might be a once-in-a-decade opportunity to start perusing REITs and other real estate investments.

Are REITs a good investment?

Real estate investment trusts can be good investments if you choose the right ones. They are a safe and reliable way to diversify your portfolio and provide you with a steady stream of income.

REITs are professionally managed and can provide more coverage than individual real estate investments. They make it easy to access a range of properties and sectors and are more liquid than direct investments such as rental property. However, they do come with higher fees than direct real estate investing and can be exposed to market fluctuations.

The great: real assets

As the name implies, real estate is a real asset. It tends to be more measured and less volatile than stocks and bonds. However, the selection that investors make matters in real estate. It’s not enough to buy any lot of land—you need to select high-quality real estate investment trusts or credit investments. 

That said, when the selection is strong, investors stand to benefit a lot from the fruits of the real estate market—a strong dividend rate, appreciation from high-quality properties, and less volatility than traditional stocks.

The good: high dividend payments

Most real estate investments produce cash flow, which is generally returned to investors in the form of high dividend payments. REITs in particular have provisions that require them to distribute 90% of their taxable income to shareholders, which usually comes as quarterly REIT dividends.

This means that investors can generally expect their real estate investments to pay them in more ways than one: mainly appreciation and property sales from real estate portfolios, but also from dividends from rental income, interest income, and other activities—which can pay upwards of 3%.

The bad: fees and taxable income

Real estate can make a great investment, but taxes and fees might take a bite out of your returns. Taxes are generally a sunk cost for investors—experienced investors have probably learned from years in the stock market, REIT investments, and alternative assets.

There’s virtually nothing you can do to reduce taxes on these investments—you should probably look to other ways to reduce your taxable income each year.

Fees, on the other hand, are easier to avoid. Thankfully, fees charged by many publicly-traded equity REITs have been picked apart over the years, which makes them relatively transparent. Some REIT ETFs are even competitive with sector ETFs on returns, cash flow, and fees.

However, investors will want to do their research on real estate offerings to understand less transparent fees that come in the form of hidden costs—fees for management, sourcing, administrative costs, and other services. These fees can reduce a REIT’s net income, which can affect profits, returns, and other important factors to consider when evaluating an investment.

The ugly: risk

Real estate is fun, until it’s not. Remember the 2008 Financial Crisis? The 2020 pandemic crash? While these things are unlikely, there are certainly unforeseen factors that can affect perceptions of the market and its viability for investment.

REITs are considered fairly low-risk investments since they’re backed by physical assets. However, that does not mean that all REITs are low risk—publicly-traded REITs are subject to trading fluctuations, can decline if investor perception sours, or could be troubled if the market goes south.

Regardless of if you’re investing in public or private REITs, there are other risks. There’s liquidity: can you easily sell your shares in real estate trust? While it might be easy with a publicly-traded company, private REITs might not make it easy. More importantly, you’ll want to know about the quality of a REIT’s equity or debt before buying in—do they have an investment-grade balance sheet?

And finally, you’ll want to know how they fund their transaction. Do they own a lot of equity in their own properties and projects? Are the projects financed with debt? Do they buy with cash? How sustainable is the dividend? What is the management’s outlook on the market?

While real estate can be a safer investment in boom times, it’s important to position what happens in down times (especially now). However, as a long-term investor, you could benefit from decades of upside.

Best REITs to invest in

We’re not saying that now is the best time to buy, but long-term thinkers and money-conscious investors should at least be familiar with what’s out there before putting their money to work.

1. Fundrise’s mREITs

Best for: Non-accredited investors looking for stable growth and quality income

Over the last few years, Fundrise has emerged as a popular real estate investing platform, thanks partly to robust advertising and renewed interest in real estate among individual investors.

Fundrise is small compared to other platforms, yet it manages $7 billion in assets and has seen mighty growth since launching in 2015—and its fees have been competitive with publicly-traded REITs. They charge a 0.15% annual management fee, plus around 0.85% for its annual management fee on properties in its portfolio.

To accommodate its fast-growing assets under management, Fundrise consolidated most user deposits into one of two core mREITs. The Flagship Real Estate and Income Real Estate Funds offer investors cash flow or growth with exposure to a portfolio of U.S. real estate—commercial, residential, rental properties, industrial, and anything in between.

Ultimately, Fundrise manages the venue that handles your money and checks the quality of properties in their portfolio. Since 2017, Fundrise has experienced just one negative growth quarter. They’ve managed to achieve this because Fundrise’s funds are not publicly-traded and are illiquid, which means investors can only exit the fund at the end of a quarter.

That might be of little concern to investors looking for a steady and reliable way to grow their net worth in the long term with limited volatility. With so many benefits and such few drawdowns, Fundrise is a great place to start accessing high-quality investments in real estate.

2. iShares Core U.S. REIT ETF

Best for: Opportunists looking for a low-cost and diverse portfolio of high-quality REITs

Indexing is a tried-and-true way to gain exposure to equities and bonds. In fact, most Americans have their retirement and investment accounts holed up in a fund tracking an index like the S&P 500 or Nasdaq-100.

Unsurprisingly, indexing is also a high-powered way to get exposure to real estate—specifically, publicly-traded real estate investment trusts. The iShares Core U.S. REIT ETF (USRT) offers investors a basket of over a hundred real estate investment trusts. It also does this at a stunningly low expense ratio of 0.08%.

While there are, of course, fees for each individual REIT in the portfolio, the fund flexes its muscles as an easy way to gain exposure to U.S. real estate. Over the last decade, it has had a 79% return on the market—and that’s assuming an investor didn’t reinvest the ETF’s 3.47% annual dividend.

Both figures are admirable and make USRT a healthy addition to any opportunistic real estate investor.

3. EquityMultiple’s Earn Funds

Best for: High net worth accredited investors looking for uncorrelated-to-market growth

Though EquityMultiple is a newcomer in the crowded real estate fintech space, its offering is almost unparalleled. The company offers investors access to professionally-managed private real estate transactions. While the company itself is not a REIT, it offers REIT-esque products across various risk levels and property types.

As of January 2023, EquityMultiple categorizes funds and offerings on its marketplace in one of three categories. However, the company’s standout funds are its Earn funds, which strike a delicate balance between income and growth. Accredited investors willing to shell out at least $25,000 can gain access to funds that can pull target returns as high as 15%, an unparalleled figure in the world of publicly-traded REITs.

That doesn’t mean that EquityMultiple’s counterparties are not without their risks. Investors in EquityMultiple funds will have some liquidity, but not until after holding a fund for 6 months. And, since Earn funds invest in a mix of equity and debt, there’s always the risk of properties being devalued or borrowers defaulting.

However, accredited investors looking for a market-agnostic way to gain exposure to commercial real estate can easily access EquityMultiple’s curated funds to meet their goals.

4. The Blackstone BREIT

Best for: Investors with financial advisors and lots of dough to throw around

Blackstone’s BREIT is a goliath—it’s unmatched by any fund in this list. The fund has averaged an astonishing 14.7% annualized return over the last three years and paid a 4.5% annual distribution on more than $125 billion worth of assets and debt.

But, just because everything else pales in comparison to Blackstone doesn’t mean it’s an ideal pick for investors. The BREIT is illiquid, meaning you might have to wait up to a quarter to sell it. This means you’re locked in, even if the market heads south.

More importantly, getting access to the BREIT isn’t exactly easy. You need to have a qualifying net worth or income to invest in the fund or work with an advisor who can give you access—and enough money to put to work.

After all is said and done, accessing the market with the depth of BREIT can be well worth it. But even though it has jaw-dropping returns, Blackstone takes a big bite through fees—a 1.25% annual management fee, a 12.5% fee on annual returns, and a 5% catch-up fee past a certain level of returns—on top of commissions, servicing, and dealer manager fees.

5. Elevate Money’s real estate investment trusts

Best for: Long-term investors looking for revenue-producing commercial properties

Elevate Money launched its first real estate trust, Money REIT I, during the pandemic with a novel fintech-flavored pitch for investors—the company only invests in properties with investment-grade tenants and long-term leases.

Those two qualities have helped Elevate take its fintech offering to the next level: the Money REIT I has paid a 6.5% annual dividend since launching in September 2021. That’s a short horizon compared to many other fintechs and legacy incumbents, but its small footprint and robust growth made Elevate worthy of inclusion.

Besides getting a healthy dividend, investors also get a stake in the upside of the properties in the REIT. That means that if the REIT sells some properties, investors make money from the gain.

However, Elevate’s novelty also comes with downsides that you wouldn’t have with publicly-traded REITs or other more-established fintechs. Mainly, its past performance is no guarantee of future performance, which means the above-average annualized dividend might not last.

The other thing is that a small portfolio and an element of ‘newness’ makes it riskier than diversified REITs with longer track records. But, that risk is offset by the types of real estate they invest in—gas stations, dollar stores, and local businesses that probably aren’t going away anytime soon.

For investors looking for a novel addition to their portfolio, especially ones with a long-term plan, Elevate Money might be a great way to invest incrementally in cash-flowing commercial real estate.

REIT stocks honorable mentions

Always consider all options before you invest, and there are other REITs worthy of mention that didn’t make our list. So here are a few more REITs that could diversify your portfolio even more.

Vanguard Real Estate ETF

Pretty much every REIT list would be incomplete without at least mentioning Vanguard’s flagship real estate ETF VNQ. VNQ is an ETF that invests in real estate developers and investment trusts—and it has averaged monster annual returns of 6.4% over the last 10 years, along with a dividend yield regularly exceeding 3%. It has also managed to do this at a mere 0.12% expense ratio.

VNQ is similar to USRT, but it invests in REITs and real estate developers. It’s also slightly more expensive than USRT, but an excellent alternative for people willing to weather the additional risk of investing in developers. Because of that, it’s an honorable mention, but the world’s largest publicly-traded real estate ETF is always worth a look.

Crowdstreet’s C-REIT

Accredited investors might be interested in Crowdstreet’s C-REIT, which pales in comparison to the capital in public markets, but has a unique presence as a real estate fintech. The company has invested more than $4 billion in capital and funded hundreds of deals. Though those figures might sound small, the REIT’s returns are not—the company reports having returned a 17.1% IRR over the last few years.

Those returns have made it notable, at least in this context. However, Crowdstreet is on the smaller side, caters exclusively to accredited investors, and charges relatively high fees compared to alternatives.

Invesco S&P 500 Equal Weight Real Estate ETF

Millions of Americans’ retirement accounts are tied up in index funds like the S&P 500, a shortlist of 500 of America’s most valuable companies. Invesco’s S&P 500 Equal Weight Real Estate ETF (EWRE) benefits from the prestige of the index, as well as its steep selection criteria.

EWRE invests in real estate trusts and developers in the S&P 500, which makes it relatively exclusive—there are only about 40 of these companies in the 500-member index. Money that’s invested is spread evenly into these high-profile and trusted firms, then rebalanced quarterly.

While its curation and inclusion criteria are redeemable, EWRE didn’t make our top list because of its high 0.40% expense ratio, as well as the fact that it’s not a true REIT ETF. What makes it less of a true REIT play is the fact that it invests in real estate developers as well, meaning you have exposure to more than just properties.

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