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🏢 ETF · REITs · Real Estate

Complete Guide to REIT Investing
— Dividends, Sectors, and Interest-Rate Sensitivity

REITs (Real Estate Investment Trusts) let you invest indirectly in real estate and receive rental income as dividends. To use them well, you need to understand not just the high yield but the interest-rate sensitivity and non-qualified dividend tax behind it.

Written by Dawn · IT Engineer · Published
💡 Key takeaway — REITs are structured to pay out 90%+ of income as dividends. Behind the high yield comes vulnerability to rising rates and a non-qualified dividend tax.

What Is a REIT?

A REIT (Real Estate Investment Trust) pools capital from many investors to invest in real estate, and in exchange for a tax benefit, must pay out 90%+ of its rental and interest income as dividends. It trades on an exchange just like a stock, so liquidity is high.

Types of REITs

TypeIncome SourceRate SensitivityCharacteristics
Equity REITRental income from physical propertyModerateMost common type. Income rises as rents rise
Mortgage REIT (mREIT)Interest margin on mortgages and MBSVery highHigh dividend, but margin collapses when rates invert
Hybrid REITMix of rental + mortgageModerate to highA mix of the two types

REITs by Sector

SectorRepresentative TickersIncome Character
ResidentialAvalonBay (AVB), EQRStable rental demand, an inflation hedge
RetailRealty Income (O), SPGO pays monthly; e-commerce is splitting the sector into winners and losers
Industrial/LogisticsPrologis (PLD)Growing on e-commerce warehouse demand
Data CenterEquinix (EQIX), DLRHigh growth on AI and cloud demand
HealthcareWelltower (WELL), VTRBenefits from an aging population, defensive
Infrastructure/TowersAmerican Tower (AMT), CCIBenefits from 5G, long-term lease contracts

REITs and Interest Rates

REITs are one of the asset classes most sensitive to rising rates. There are two reasons.

  • Higher funding cost — REITs buy property with debt, so rising rates raise interest expense and shrink profit
  • Competition from alternative assets — as Treasury yields rise, a REIT's dividend yield looks relatively less attractive and capital flows out

Conversely, REITs benefit strongly when rates fall or a cut is expected. That's why REIT prices correlate so closely with FOMC rate decisions.

Dividend Character — Non-Qualified Dividends

Most REIT dividends are classified as Non-Qualified Dividends. Unlike a regular stock dividend (Qualified, up to 20%), they're taxed at the ordinary income tax rate (up to 37%). For a Korean investor buying US stocks, after a 30% US withholding, the dividend may also be added into your combined income for Korean taxation, so you must calculate your actual after-tax yield.

Comparing dividend types — Regular stock dividend (Qualified): 0–20% tax rate / REIT dividend (Non-Qualified): up to 37% / Covered-call ETF distributions: varies by character. See the dividend types guide for detail.

Key Metrics for REIT Investing

  • FFO (Funds From Operations) — a REIT's real earnings. Net income + depreciation. REITs are valued on FFO instead of EPS
  • P/FFO — a REIT's PER equivalent. The standard for comparing within a sector
  • Dividend yield — central to picking a REIT, but if it's too high (10%+) it can signal dividend-cut risk
  • Occupancy Rate — the key operating metric for a physical-rental REIT

Check It Now

Use the dividend tool to check REIT dividend schedules and yields. Also see the complete guide to dividend types and key dividend dates.

Caution — Don't make an investment decision based on REIT dividend yield or FFO figures alone. All information here is for reference only, and the investment decision and its outcome are your own responsibility.
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Frequently Asked Questions

Why does a REIT's price fall when rates rise?

There are two reasons. ① REITs buy property with debt, so when rates rise, funding costs go up and profit shrinks. ② A REIT's high dividend yield is its main appeal, but when rising rates push up bond yields, the REIT's relative appeal drops. This is also why REITs do well when rates are falling.

What's the difference between an Equity REIT and a Mortgage REIT?

An Equity REIT directly owns and leases physical property (buildings, land) and pays dividends from rental income. A Mortgage REIT (mREIT) invests in mortgage loans or MBS (mortgage-backed securities) and pays dividends from the interest margin. An mREIT is far more sensitive to rate changes, and while its dividend is higher, its principal is also more volatile.

Why is REIT dividend income "non-qualified"?

Under US tax law, a REIT must pay out 90% of its income as dividends, and that dividend is taxed at the ordinary income tax rate (Non-Qualified Dividend). That can mean a higher tax rate than a regular stock dividend (Qualified Dividend, 0–20%). You must factor in this difference when calculating your after-tax yield.

Which is better — a REIT ETF or individual REITs?

A REIT ETF (VNQ, SCHH, etc.) spreads risk across dozens to hundreds of REITs, cutting individual property risk. An individual REIT (O, AMT, PLD, etc.) can concentrate in a specific sector and offer a higher dividend yield, but without diversification. If you're just starting out, an ETF is common; if you know a sector well, mixing in individual REITs alongside an ETF is common too.
💸
Complete Guide to Dividend Types
Comparing non-qualified, qualified, and distribution tax rates
📅
Key Dividend Dates
Ex-dividend date, payment date, and record date, fully explained
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Dividend Tool
Check REIT dividend schedules and yields

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