Personal Finance & Estate › Investing basics & strategy › Real estate vs. stocks (illiquid vs. liquid wealth)
REITs (publicly traded real estate)
Since 1960· Concept or strategy
Standard practiceWhat most planners, CPAs and attorneys recommend.
Companies that own income-producing real estate and trade like stocks, letting investors own property without managing it.
See it on the Personal Finance & Estate map →How it works
Congress created REITs in 1960. To avoid corporate tax, a REIT must hold at least 75% of assets in real estate, earn at least 75% of income from it, and pay out at least 90% of taxable income as dividends. Public REITs own apartments, warehouses, offices, data centers and cell towers. Dividends are mostly taxed as ordinary income, but 20% is deductible under Sec. 199A. Prices are volatile: REIT indexes fell about two-thirds in 2007–2009. Non-traded REITs are illiquid and costly.
Why it matters for you
REITs offer real-estate exposure that is liquid, diversified and passive, in amounts as small as one share.
Rules, limits and sources (2026)
IRC Secs. 856–860 set the rules; Nareit and FTSE publish REIT index data back to 1972.
Watch out for
Whether REITs diversify a portfolio already heavy in real estate is debated: they spread region and property type, not asset class.
Connections (2)
▸REITs (publicly traded real estate) bridge both sides of Real estate vs. stocks (illiquid vs. liquid wealth)Standard practice
How they connect
REITs blend both sides: they own buildings and collect rents like direct real estate, but trade daily on exchanges like stocks. Investors get liquidity and diversification without management, but give up the control, leverage choices and depreciation deductions that direct owners keep.
When it applies
Since the 1960 law; the modern public REIT market grew after an early-1990s wave of REIT IPOs.
How sure?
Studies comparing REIT indexes with the NCREIF private-property index find short-term differences but similar long-run returns after adjusting for leverage.
Watch out for
Short-run REIT prices track the stock market; whether they behave more like stocks or property depends on the time frame studied.
▸REITs (publicly traded real estate) can be held through Index funds & ETFsStandard practice
How they connect
REITs can be bought one by one or through REIT index funds and ETFs that hold dozens of them. Broad US stock index funds already hold REITs, roughly 2–3% of the market, so an index investor owns some real estate automatically.
When it applies
The first REIT index fund launched in 1996 (Vanguard's); real estate became its own stock-market sector in 2016.
How sure?
Fund holdings reports; S&P and MSCI sector classification documents.
Watch out for
Whether a building owner benefits from adding a separate REIT fund, or already has enough real estate, is a judgment call.