5 Ways to Earn 4% to 9% from Real-Estate Investment Trusts
Real estate investment trusts had a great run. They're discounted now, and still hold promise.

REITs were on fire coming out of the Great Recession, as the recovering economy and rock-bottom interest rates boosted prices of the commercial, industrial and residential real estate that the companies own and manage. But the jump in longer-term interest rates early this year hit REITs hard. The average real estate mutual fund is down 8.3% in 2018. That makes some REITs compelling bargains, with yields in the range of 4% to 9%.
Earnings for All
- 35 Ways to Earn Up to 11% on Your Money
- Short-Term Accounts: 1%-2%
- Muncipal Bonds: 2%-3%
- Investment-Grade Bonds: 3%-4%
- Foreign Bonds: 3%-5%
- High-Yield bonds: 3%-6%
- Dividend-Paying Stocks: 4%-6%
- Real-Estate Investment Trusts: 4%-9%
- Closed-End Funds: 4%-9%
- Master Limited Partnerships: 8%-11%
The risks: Higher interest rates create competition for REITs' dividend payments and make it more expensive for REIT managers to borrow to buy new properties. But if the backdrop for rising rates is a strong economy, that should underpin property rents and thus REIT income and dividends. And if inflation rises with the economy, real estate's role as an inflation hedge could lure investors.The prospects for REITs vary depending on the markets in which they operate, so it pays to be choosy–or well diversified. Some retail-focused REITs are reeling from the shift away from brick-and-mortar sales to online shopping, for example.
How to invest: The simplest, lowest-cost route is to own an index fund that holds a broadly diversified portfolio of REITs. Vanguard Real Estate Index ETF (VNQ, $74, 3.8%), like its mutual fund cousin (VGSIX), owns shares of 185 REITs. The ETF has gained an average of 5.6% a year over the past 10 years, beating the 5.2% return of the average real estate fund. Fidelity Real Estate Income (FRIFX, 4.4%) mixes REIT shares with real estate-related corporate bonds, preferred shares and mortgage-backed securities. The fund has gained an annualized 7.8% over the past 10 years.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Among individual REITs, Realty Income (O, $50, 5.3%) is one of the Kip Dividend 15. Although most of Realty's 5,200 properties are retail stores, its occupancy rate is 98%. The firm has shied away from malls, focusing instead on free-standing buildings that house tenants such as drugstores, convenience stores and fitness facilities. We also like Monmouth Real Estate Investment (MNR, $15, 4.5%). It's an e-commerce play: 60% of revenue comes from properties occupied by package delivery titan FedEx.
Investors willing to accept higher risk to get higher yields might consider REITs that invest in commercial or residential mortgages. One idea: iShares Mortgage Real Estate Capped (REM, $42, 8.5%), which owns stakes in some of the biggest mortgage REIT funds, including Annaly Capital Management and Starwood Property Trust.

-
How Much Does It Cost to Move?
Finding out how much it costs to move and budgeting correctly is essential when you're planning to buy or rent a property. Here’s what you need to know.
By Tom Higgins Published
-
Retirement Planning in a Time of Inflation and High Interest Rates
Today’s challenges make retirement planning even more complicated than usual, but it’s not all doom and gloom.
By Ken Moraif, MBA, CFP®, CRPC® Published
-
Stock Market Today: Dow Soars 511 Points After McDonald's Earnings
All three indexes notched impressive gains Monday ahead of a jam-packed week on Wall Street.
By Karee Venema Published
-
7 Stocks to Give Your Grandchildren
A pick of stocks to give your grandchildren as long-term gifts.
By Dan Burrows Published
-
How to Find the Best 401(k) Investments
Many folks are likely wondering how to find the best 401(k) investments after signing up for their company's retirement plan. Here's where to get started.
By Deborah Yao Published
-
How to Master Index Investing
Index investing allows market participants to use baskets of stocks and bonds to build the best portfolio to meet their goals. Here's how it works.
By Nellie S. Huang Published
-
How to Find the Best Vanguard ETFs
Investors looking for the best Vanguard ETFs would be wise to follow the philosophy of the asset manager's founder, John Bogle.
By Jeff Reeves Published
-
Best Banks for High-Net-Worth Clients
wealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
By Lisa Gerstner Published
-
Donor-Advised Funds: A Tax-Savvy Way to Rebalance Your Portfolio
Long-term investors who embrace charitable giving can easily save on capital gains taxes by donating shares when it’s time to get their portfolio back in balance.
By Adam Nash Published
-
Choosing Between Look-Alike ETFs and Mutual Funds
If you're trying to choose between ETFs and Mutual Funds, some factors to help you decide are how you trade and the type of account you plan to use.
By Nellie S. Huang Published