Is Investing In A REIT Worth It in 2025? REIT Investing (Real Estate Investment Trust)

Why Everyone's Suddenly Asking About REITs

Lately, I’ve been getting a flood of questions about REITs—real estate investment trusts. I’m not exactly sure what sparked the trend, but if I had to guess, it probably has something to do with the recent surge in real estate prices.

So, let's talk REITs. I'm going to walk you through the pros and cons, when it actually makes sense to invest in them, and how to avoid making costly mistakes. I’ll also show you how they’ve performed historically by backtesting a few portfolios. And yeah, I’ll give you my final take on whether you should jump in or sit this one out.

What Is a REIT, Really?

A REIT is a company that owns, buys, sells, and holds real estate—anything from malls to hospitals, casinos to office buildings, and even cell phone towers. Some focus on flipping properties for profit, others prefer the buy-and-hold rental model, and some blend both.

Most of them are publicly traded, which means you can buy them like any stock. That makes them an easy way to add real estate to your investment mix without having to deal with tenants, maintenance calls, or fixing a leaky roof at midnight.

Why Investors Love REITs

Here’s what draws people in:

🧩 Diversification

REITs give you exposure to a different asset class—real estate. It's not as tightly correlated with tech stocks or auto companies, so during a market downturn, REITs might hold their ground better.

For example, since 1997, REIT indexes have had periods of outperformance and underperformance versus the total stock market. Over 27 years, $10,000 invested in REITs grew to about $130,000. The same amount in the total U.S. stock market? Around $157,000. Not a massive difference. The point: REITs can help smooth out volatility in a portfolio.

Keep in mind, if you already own a total stock market or S&P 500 index fund, you’re probably exposed to real estate already—somewhere between 2–4%. So adding a separate REIT might just be doubling down.

💸 Liquidity

Unlike physical real estate, REITs are highly liquid. You can sell your shares with a click. Try doing that with a duplex—you’ll be waiting weeks, maybe months. But don’t treat REITs like penny stocks. Think long-term. Still, it's good to know the cash is accessible if you need it.

💰 Dividends

REITs are known for their dividends—quarterly or even monthly payouts. Why? By law, they have to distribute 90% of their taxable income to shareholders. With long-term tenants locked into leases, that creates reliable income streams.

The Flip Side: What to Watch Out For

No investment is perfect. REITs come with risks and trade-offs.

📉 Interest Rate Sensitivity

Real estate prices—and REITs by extension—are sensitive to interest rate hikes. Most REITs take on debt to acquire properties, so when borrowing costs rise, their margins shrink. The Fed kept rates low for a long time, which helped REIT prices climb. But when rates go up? Expect turbulence.

💵 Tax Drag

This is where many investors mess up. Dividends from REITs are taxed as ordinary income, not the lower long-term capital gains rate. Even if you reinvest them, Uncle Sam still wants his cut. If you're in the 12% tax bracket, that income could push you into 22%.

That tax drag quietly chips away at your returns. Solution? Use a tax-advantaged account like a 401(k), IRA, 403(b), or HSA. Just don’t stick REITs—or any high-dividend stock—in a regular taxable account unless you really understand the tax implications.

🚩 Too-Good-to-Be-True Dividends

Some REITs flash crazy-high dividend yields. 20%+? Sounds sexy, but it’s probably a red flag. Always dig into the fundamentals. Can they actually sustain that payout long-term? If not, they’ll slash it—and leave you holding the bag.

The REIT ETF Advantage

Doing a deep dive on individual REITs can be overwhelming. That’s why I like REIT ETFs. You get instant diversification across dozens (or hundreds) of REITs in one fund.

Take the Vanguard Real Estate ETF, for example. It includes big names like Crown Castle, Store Capital, and Simon Property Group—plus over 170 others. You don’t have to be a real estate guru to play the game.

Personally, I’ll pick an ETF over an individual REIT stock any day. But if you know what you're doing, go for it.

Backtesting: Do REITs Improve Performance?

I ran some backtests using monthly investments of $500—roughly what you'd need to max out a Roth IRA each year. I created three different portfolios:

The results? Pretty similar. All three portfolios were within 1% of each other over time. The only one that lagged a bit was the third, thanks to international exposure dragging it down.

If we flipped that—20% REIT, 10% international—the performance improved slightly.

Bottom line: REITs aren’t going to radically change your portfolio returns, but they can help balance things out—especially during periods of stock market chaos.

Should You Invest in REITs?

There’s no hard rule here. It all comes down to personal preference.

Double-check your portfolio first—you might already have more real estate exposure than you realize.

Make your moves smart. And whatever you do—don’t forget to hulk smash that thumbs up button on the way out.

You'll find some free stock offers and investing tools in the description, plus other resources to level up your path to financial independence.

Catch you in the next one.