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1. Identify the REIT structure
REITs are not interchangeable. A publicly traded REIT, a non-traded REIT, a private REIT, and a REIT fund can differ in liquidity, pricing, disclosure, eligibility, fees, and conflicts. Establish the structure before comparing yields.
| Structure | Pricing and exit | Reporting and key checks |
|---|---|---|
| Publicly traded REIT | Exchange-listed, with an observable market price; shares can generally be bought and sold with relative ease. | Review SEC reports, market price, operating performance, and fees. |
| Non-traded REIT | Not exchange-listed. Pricing is less transparent, and resale may be limited. A redemption program can have limits, be suspended or discontinued, and may not provide an exit when you want one. | Read the prospectus and supplements for redemption terms, holding periods, fees, valuation method, and exit assumptions. Do not treat a redemption program as equivalent to exchange liquidity. |
| Private REIT | Unlisted; resale and pricing may be limited or difficult to assess. | Regular SEC reports may not be available. Check investor eligibility, offering materials, reporting arrangements, fees, and conflicts. |
| REIT mutual fund or ETF | You buy fund shares rather than a direct interest in one REIT; the fund’s own shares have their own pricing and trading arrangements. | Review the fund’s holdings, fees, strategy, and risks as well as the underlying REIT exposure. |
The SEC describes these differences and the risks of non-traded REIT redemptions in its REIT investor bulletin and non-traded REIT bulletin.
2. Understand what it owns and how it earns
Read the latest company reports to determine whether the REIT owns income-producing property, real-estate-related debt, or a combination, and which property types, markets, tenants, or borrowers dominate its portfolio. Apartments, offices, retail, healthcare, and industrial properties have different demand drivers and risks. A broad label such as “real estate” is not enough to understand a particular issuer.
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Equity REITs
Equity REITs own or operate properties and generally earn income from rents and related property operations. Examine the portfolio’s concentration and the company’s disclosures about occupancy, leasing, tenant exposure, property expenses, acquisitions, and dispositions. A concentrated portfolio can make results more dependent on a particular property type, region, or tenant group.
Mortgage REITs
Mortgage REITs invest in real-estate-related debt, such as mortgages or mortgage-backed securities, rather than relying primarily on rent from owned buildings. Their financing, leverage, hedging, and interest-rate exposures can differ substantially from those of property-owning REITs. Use the company’s current filings to identify its actual assets and financing strategy rather than assuming all mortgage REITs have the same risks. The SEC discusses REIT categories and interest-rate and leverage risks in its investor bulletin.
3. Assess operating performance using the right measures
For an equity REIT, read GAAP financial statements alongside funds from operations (FFO). Nareit says it created FFO in 1991 as a supplemental measure that addresses the effect of historical-cost depreciation and amortization of real estate under GAAP. FFO starts with GAAP net income and adjusts for real-estate depreciation and amortization, certain gains or losses on property sales and changes in control, and specified impairment write-downs.
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FFO can help describe operating performance, but it is not cash flow, a guarantee of dividend capacity, or a replacement for GAAP statements. Review the company’s reconciliations and cash needs, including debt service and property investment. See Nareit’s FFO definition.
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Read AFFO as a company-defined measure
Adjusted FFO (AFFO) is not standardized. Companies may adjust FFO for items such as recurring capitalized property expenditures and straight-line rent, but definitions vary. Nareit cautions that financial statement users should understand how each company defines AFFO. Compare a REIT’s AFFO across time using its own consistent definition, and be cautious about peer comparisons unless the adjustments are genuinely comparable. Read the issuer’s reconciliation rather than relying on the label. See Nareit’s AFFO definition.
Look for what is changing per share
Compare revenue, expenses, FFO per share, and any company-reported AFFO per share across multiple reporting periods. Use the reports to investigate changes in occupancy or leasing, financing costs, asset sales, share issuance, and management adjustments. Per-share trends matter because acquisitions funded by issuing shares can increase the portfolio while changing each existing share’s claim on results.
4. Test whether distributions are supported
Compare declared distributions with operating measures, their trend, and the disclosed source of cash. A high yield does not establish that operations can sustain the payment. For a non-traded REIT in particular, examine whether distributions have been funded from operating cash, offering proceeds, borrowings, or other sources. The SEC warns that paying distributions in excess of FFO from offering proceeds or borrowings can reduce share value and cash available for acquisitions; see its non-traded REIT bulletin and general REIT bulletin.
The SEC explains that REITs generally must distribute at least 90% of taxable income to shareholders to qualify for the described U.S. tax treatment. Taxable income and FFO are different measures, so that distribution rule does not by itself show that a particular dividend is financially sustainable. The SEC outlines the rule in its REIT investor bulletin.
5. Examine debt, rate sensitivity, and management
Debt and interest rates
Use current filings to review debt maturities, interest expense, fixed- versus floating-rate exposure, refinancing needs, and hedging. Rising rates can raise financing and acquisition costs, while rents or mortgage rates may also change; the net effect depends on the REIT’s assets and liabilities. Mortgage REITs have additional leverage and hedging risks. The SEC discusses these potential effects in its REIT investor bulletin.
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Fees and conflicts
Determine whether the REIT is externally managed and inspect related-party arrangements, acquisition fees, property-management fees, and compensation tied to assets under management. Fees based on acquisitions or asset growth may not align with shareholder interests, a concern the SEC highlights particularly for externally managed non-traded REITs. Start with the prospectus and related-party disclosures, not a marketing summary. See the SEC’s non-traded REIT bulletin and general REIT bulletin.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.6. Consider price, liquidity, fees, and taxes
Price and total return
For a listed REIT, consider market price and total return alongside operating performance and suitable peers; yield alone omits changes in share price and distributions over time. For non-traded REITs, the lack of exchange trading can make share value harder to assess. Ask how the stated value is determined and whether it represents a price at which you could actually sell.
Offering costs
Check the current prospectus fee schedule for upfront and ongoing costs. Historical SEC materials illustrate why this matters but are not current terms for any specific offering: a 2015 SEC bulletin said fees for non-traded REITs could represent up to 15% of the offering price, while the SEC’s general REIT bulletin describes sales commissions and upfront offering fees of approximately 9% to 10% in its context. Actual charges depend on the offering; verify them in current documents. See the SEC’s non-traded REIT bulletin and general REIT bulletin.
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Tax treatment
The SEC says REIT dividends generally do not qualify for the favorable tax rate that applies to qualified dividends, and shareholders are responsible for tax on dividends and capital gains. Your result depends on your circumstances and account type. Review current tax documents and consult a qualified tax professional for personalized advice. See the SEC’s REIT investor bulletin and general REIT information.
7. Verify the claims in primary documents
Use the latest filings and offering documents rather than relying only on a factsheet, sales presentation, or quoted yield. SEC guidance identifies annual reports, quarterly reports, and offering documents as useful sources. For a registered non-traded REIT offering, prospectus materials may appear as 424B3 filings.
- Find the issuer on SEC EDGAR. Confirm the company and locate its latest Form 10-K, Form 10-Q, and, where relevant, prospectus and supplements.
- Read the business description and risk factors. Identify the property or debt portfolio, geographic and tenant concentrations, financing exposures, and risks that could affect income or value.
- Check the financial statements and metric reconciliations. Compare GAAP results with FFO and the issuer’s own AFFO definition, then look for changes in financing, share count, and operating performance.
- Trace distributions and costs. Review disclosures about distribution sources, fees, related-party transactions, and any changes from prior reports.
- Confirm exit terms and sales practices. For a non-traded or private REIT, read redemption, resale, or liquidation provisions and verify the issuer and selling professional’s registration as applicable.
The SEC’s REIT bulletin and non-traded REIT bulletin explain these document types and risks. Current market prices, yields, leverage, operating results, offering terms, and tax consequences can change; use up-to-date issuer documents for the specific investment you are evaluating.
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