Top 10 Best Performing REITs to Add to Your Portfolio

Have you ever dreamed of owning a piece of a Manhattan high-rise, a luxurious shopping mall, or a high-end apartment complex? What if we told you that it’s possible for you to invest in these types of properties without having to be a real estate tycoon? 

It may sound too good to be true, but that’s the power of Real Estate Investment Trusts (REITs), and they have become increasingly popular among high-income earners and families who want to diversify their investment portfolios. In fact, the best performing REITs have consistently delivered impressive returns for their investors.

In this article, we’ll unveil the secrets of the lucrative world of REITs and show you how to identify the best performing investment opportunities to help you achieve your financial goals. We’ll start by explaining what REITs are and how they work, and then we’ll delve into the benefits and risks associated with investing in them. Finally, we’ll highlight some of the best performing REITs and ETFs that have caught the attention of savvy investors. By the end of this article, you’ll be equipped with the knowledge to make informed decisions about incorporating REITs into your investment strategy, putting you one step closer to financial freedom.

What are REITs?

So, what exactly are REITs? REITs, or Real Estate Investment Trusts, are companies that own, operate, or finance income-producing real estate properties. They were created to allow everyday investors to gain exposure to large-scale real estate investments that would otherwise be inaccessible to them. By investing in REITs, you’re essentially pooling your money with other investors to buy shares of a company that manages a diverse portfolio of properties, which can include office buildings, shopping malls, hotels, apartments, and even data centers.

Now, let’s break down how REITs work. In order to qualify as a REIT, a company must meet several criteria set by the Internal Revenue Service (IRS). Some of these criteria include investing at least 75% of its assets in real estate, deriving at least 75% of its income from rents or interest on mortgages, and paying out at least 90% of its taxable income to shareholders in the form of dividends. These requirements ensure that the majority of the income generated by REITs flows back to you, the investor, in the form of consistent dividend payments.

There are several types of REITs, each focusing on specific sectors within the real estate market. Here are the main categories:

Equity REITs: These are the most common type of REITs, and they own and manage income-producing properties. They make money primarily through collecting rent from tenants.

Mortgage REITs: These REITs invest in mortgages and mortgage-backed securities, making money from the interest on these loans.

Hybrid REITs: These REITs combine the strategies of both equity and mortgage REITs, owning properties and investing in mortgages.

Understanding the various types of REITs and how they work is essential when searching for the best performing REITs to add to your investment portfolio. By doing so, you’ll be able to make informed decisions that align with your financial goals and risk tolerance, helping you build a solid foundation for achieving financial freedom.

Benefits of Investing in REITs

If you’re looking to diversify your investment portfolio and potentially increase your returns, REITs offer several benefits that make them an attractive option. Let’s explore some of these advantages.

Steady Income Stream: As mentioned earlier, REITs are required to distribute at least 90% of their taxable income to shareholders as dividends. This means that when you invest in REITs, you can expect to receive regular dividend payments, which can be an excellent source of passive income. Some of the best performing REITs have consistently paid high dividends, making them particularly appealing for investors seeking stable cash flow.

Diversification: Real estate is often considered a separate asset class from stocks and bonds. This means that including REITs in your portfolio can help spread risk and reduce the impact of market volatility on your overall investments. For example, if the stock market experiences a downturn, your real estate investments may not be as affected, potentially offsetting some of the losses from your stock investments.

Liquidity: Unlike direct real estate investments, which can be time-consuming and costly to sell, REITs are traded on major stock exchanges, making it easy for you to buy and sell shares whenever you want. This liquidity is particularly beneficial if you need to quickly access your funds or want to capitalize on new investment opportunities.

Inflation Hedge: Historically, real estate investments have been known to serve as a hedge against inflation. As the cost of living increases, property values and rents often rise as well, leading to higher income for REITs. This, in turn, can lead to higher dividend payments for investors, helping to protect your purchasing power during times of inflation.

While the benefits of investing in REITs are undeniably attractive, it’s essential to understand the associated risks and factors to consider when choosing the best performing REITs for your investment portfolio. In the next section, we’ll delve into these aspects to help you make well-informed decisions.

Risks Associated with REITs

While REITs can be a lucrative addition to your investment portfolio, they are not without risks. Before diving into the world of REITs, it’s crucial to be aware of these potential pitfalls and take them into consideration when selecting the best performing REITs for your portfolio. Let’s examine some of the most common risks associated with REITs.

Interest Rate Risk: REITs are sensitive to fluctuations in interest rates. When interest rates rise, the cost of borrowing increases for both REITs and their tenants, potentially leading to reduced profitability for REITs and a decline in property values. Additionally, when interest rates rise, investors may shift their focus to other income-generating investments like bonds, which can result in reduced demand for REIT shares and a decline in their value. It’s essential to keep an eye on interest rate trends when investing in REITs and adjust your strategy accordingly.

Market Risk: As with any investment, REITs are subject to market risk. This means that the value of your REIT shares can fluctuate based on factors such as economic conditions, investor sentiment, and changes in the real estate market. While diversification can help mitigate market risk, it’s essential to be prepared for potential fluctuations in the value of your REIT investments.

Property-specific Risks: Each property within a REIT’s portfolio is subject to its own set of risks, including location, age, and tenant mix. For example, a shopping mall that loses a major anchor tenant may struggle to attract new tenants, leading to reduced rental income for the REIT. Similarly, a natural disaster could damage a property, resulting in costly repairs and potential loss of rental income. To minimize property-specific risks, it’s essential to select REITs with diversified property portfolios and strong management teams that can effectively navigate these challenges.

Understanding the risks associated with REITs is a vital part of your investment journey. By being aware of these potential pitfalls, you can make more informed decisions when selecting the best performing REITs to add to your portfolio, striking the right balance between risk and reward.

Factors to Consider When Choosing REITs

Now that you understand the benefits and risks associated with investing in REITs, it’s time to explore the factors you should consider when selecting the best performing REITs for your portfolio. By carefully evaluating these factors, you can identify REITs with strong potential for growth and consistent dividend payments. Let’s take a look at some key aspects to consider.

Management Team: A skilled and experienced management team can make a significant difference in a REIT’s performance. Look for REITs with seasoned executives who have a proven track record in the real estate industry, particularly in the specific sectors the REIT focuses on. Strong management teams are more likely to navigate market fluctuations and property-specific risks effectively, ensuring the REIT remains profitable and continues to deliver healthy dividends.

Property Portfolio: The quality and diversity of a REIT’s property portfolio play a crucial role in its performance. Look for REITs with well-maintained properties in prime locations, as these tend to generate higher rental income and attract more reliable tenants. Additionally, a diverse property portfolio, spread across various sectors and geographical locations, can help minimize risks associated with market downturns or property-specific issues.

Financial Performance: Assessing a REIT’s financial performance is essential when determining its potential for future growth and stability. Key financial metrics to consider include Funds from Operations (FFO), which is a measure of a REIT’s operating cash flow, and the debt-to-equity ratio, which can indicate the level of financial risk the REIT is taking on. REITs with strong financial performance are more likely to be among the best performing REITs and deliver consistent returns to investors.

Dividend Yield: As an investor in REITs, one of your primary goals is likely to generate a steady stream of income through dividends. Comparing the dividend yields of different REITs can help you identify those with the potential to deliver higher income. However, be cautious of extremely high dividend yields, as they may not be sustainable in the long term. Striking a balance between attractive dividend yield and the overall stability of the REIT is essential for long-term success.

By considering these factors, you can make informed decisions when selecting the best performing REITs for your investment portfolio. In the following sections, we’ll explore some specific REITs and ETFs that have stood out in terms of performance and potential for growth. These examples can serve as a starting point for your own research and investment strategy.

Best Performing REIT Stocks

In this section, we’ll take a closer look at some of the best performing REITs in recent times. By examining their investment portfolios, focus, financial performance, and dividend history, you can gain valuable insights into what sets these REITs apart from the rest. Keep in mind that past performance is not a guarantee of future results, and it’s essential to conduct your own research and analysis before investing.

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Getty Realty Corp. (GTY) – 32.13% year-to-date return

Getty Realty Corp. has emerged as one of the best performing REITs. Focused primarily on convenience stores, gasoline stations, and automotive service stations, this REIT benefits from the essential nature of these businesses, which tend to be more resilient during economic downturns. Getty Realty Corp. boasts a diverse portfolio of properties spread across the United States, which contributes to its stability. In recent years, the company has consistently delivered strong financial performance and healthy dividend payments, making it an attractive option for income-seeking investors.

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Aimco (AIV) – 20.87%  year-to-date return

Aimco is another standout performer in the REIT space. This residential REIT focuses on owning and managing apartment communities across the United States. With a diverse property portfolio and a strong emphasis on providing quality living experiences to its residents, Aimco has been able to achieve consistent financial performance and an attractive dividend history.

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CareTrust REIT, Inc. (CTRE) – 20.34% year-to-date return

CareTrust REIT, Inc., specializes in healthcare and senior living properties. This REIT’s focus on essential services, such as skilled nursing facilities, assisted living communities, and memory care facilities, positions it well for growth, given the aging population in the United States. CareTrust REIT’s financial performance has been robust, and its dividend history demonstrates its commitment to rewarding investors with steady income.

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Gaming and Leisure Properties, Inc. (GLPI) – 17.58% year-to-date return

This unique REIT focuses on owning and leasing casino and gaming properties. Despite being a niche sector, Gaming and Leisure Properties, Inc. has delivered strong financial performance, thanks in part to the long-term, triple-net leases it has in place with gaming operators. This ensures a stable cash flow and enables the company to continue paying attractive dividends to its shareholders.

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Service Properties Trust (SVC) – 16.38% year-to-date return

Service Properties Trust is another strong performer in the REIT market. This REIT has a diverse portfolio of hotels, travel centers, and other service-focused properties throughout the United States. Its properties are operated by well-known brands, which contribute to the company’s stability and financial performance. Service Properties Trust has a solid dividend history, making it an appealing choice for investors seeking income.

By examining the best performing REITs, you can identify the characteristics that contribute to their success and use this information to inform your own investment decisions. In the next section, we’ll explore some of the best performing ETFs, which offer another avenue for investing in the real estate market.

Best Performing ETFs

In addition to investing directly in individual REITs, you can also gain exposure to the real estate market through ETFs (Exchange-Traded Funds). These funds invest in a diversified portfolio of real estate assets, offering the benefits of diversification and professional management. Let’s take a closer look at some of the best performing ETFs that focus on REITs.

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Pacer Industrial Real Estate ETF (INDS) – 10.20% year-to-date return

Expense ratio (cost) – 0.55%

Pacer Industrial Real Estate ETF is an attractive option for investors seeking exposure to the industrial real estate sector. This ETF invests in a variety of industrial properties, including warehouses, distribution centers, and e-commerce facilities. As the demand for logistics and e-commerce infrastructure continues to grow, the Pacer Industrial Real Estate ETF is well-positioned to benefit from this trend.

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Nuveen Short-Term REIT ETF (NURE) – 6.42% year-to-date return

Expense ratio (cost) – 0.35%

This ETF focuses on short-term REITs, providing investors with a unique opportunity to invest in REITs with shorter lease durations. This strategy can offer increased flexibility and lower interest rate risk compared to longer-term investments. The Nuveen Short-Term REIT ETF has a diverse portfolio of real estate assets, spanning various sectors and geographical locations.

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iShares Residential and Multisector Real Estate ETF (REZ) – 5.07% year-to-date return

Expense ratio (cost) – 0.48%

The iShares Residential and Multisector Real Estate ETF offers investors exposure to a diverse range of real estate sectors, including residential, healthcare, and self-storage properties. This diversified approach can help mitigate risks associated with individual sectors and provides investors with broad exposure to the real estate market.

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ETFB Green SRI REITs ETF (RITA) – 5.04% year-to-date return

Expense ratio (cost) – 0.50%

The ETFB Green SRI REITs ETF is a socially responsible investment option that focuses on REITs with strong environmental, social, and governance (ESG) practices. This ETF invests in a variety of real estate sectors, including office buildings, retail properties, and industrial facilities, while prioritizing companies with strong ESG performance.

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Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI) – 4.75% year-to-date return

Expense ratio (cost) – 0.75%

This ETF offers investors exposure to real estate and infrastructure assets that are poised to benefit from future trends, such as urbanization and technological advancements. The Goldman Sachs Future Real Estate and Infrastructure Equity ETF invests in a diverse range of properties and infrastructure assets, including data centers, cell towers, and transportation facilities.

By exploring the best performing ETFs, you can gain a deeper understanding of the various strategies and sectors within the real estate market. Combining individual REITs and ETFs can provide a well-rounded and diversified investment portfolio, enabling you to capitalize on the growth and income potential of the real estate market while managing risks effectively.

Conclusion

We’ve explored the world of REITs, delving into their unique characteristics, benefits, and risks. As an investor seeking financial freedom, you can consider incorporating these best performing REITs and ETFs into your investment strategy. They offer a steady income stream, diversification, and the potential for capital appreciation.

While we’ve highlighted some of the best performing REITs and ETFs, it’s essential to remember that investing in real estate is not without its risks. Factors such as interest rate fluctuations, market volatility, and property-specific risks can impact the performance of your investments. When choosing REITs or ETFs, consider factors like the management team, property portfolio, financial performance, and dividend yield to make informed decisions.

Ultimately, investing in real estate through REITs and ETFs can be a powerful tool in your journey towards financial freedom. By taking the time to research and analyze these investment opportunities, you can make informed decisions and create a well-rounded, diversified portfolio designed to grow your wealth and achieve your financial goals.

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Featured image: Acton Crawford