I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.
Warren Buffett once stated, “If you don’t find a way to make money while you sleep, you will work until you die.”
Real estate investment trust exchange-traded funds (REIT ETFs) are a popular choice for earning passive income. The new year is quickly approaching.
Are you looking to make passive income by investing in some of the best REIT ETFs? Perhaps you’re not sure where to begin or where to look.
Real estate ETFs are a popular choice for those looking for an easy way to make passive income from the stock market, as they have historically paid consistent dividends and provided diversification.
However, the vast array of investment options can be overwhelming to decipher. We have selected 9 of the best REIT ETFs and index funds for 2023. You will also learn how to choose the right ETF and index fund.
Top 9 Best REIT ETFs & Index Funds
- Vanguard Real Estate ETF – Best Overall
- VanEck Mortgage REIT Income ETF – Best high dividend REIT ETF
- iShares Core U.S. REIT ETF – Best low expense ratio
- Vanguard Real Estate Index Fund – Best REIT index fund
- Fidelity MSCI Real Estate ETF – Best for U.S. equities
- Invesco KBW Premium Yield Equity REIT ETF – Best small-cap REIT
- iShares Residential and Multi-sector Real Estate ETF – Best residential REIT ETF
- Schwab U.S. REIT ETF – Best actively managed REIT ETF
- Real Estate Select SPDR Fund – Best REIT fund
Invest, borrow, and spend on one intuitive platform. Customize your strategies, automate the big picture, and let The Finance Super App® take care of the day-to-day—commission-free.
Methodology
Wondering how we chose our picks? We combed through dozens of exchange-traded and index funds to find the top REIT ETFs.
We narrowed down our selection by choosing funds with a low expense ratio, high dividend yield and close tracking correlation to their benchmark.
Vanguard Real Estate ETF (VNQ) – Best Overall
With 170 holdings, 33 billion in assets under management (AUM) and a daily volume of 4 million shares, VNQ is a true Goliath.
This REIT ETF provides investors access to the largest REITs in the real estate sector. The fund’s significant holdings help reduce the risks that plague smaller ETFs.
The ETF has performed well even as inflation reached 40-year highs. In addition, its low expense ratio and 3% dividend yield make it an attractive option for investors. VNQ has a very competitive expense ratio and dividend.
- Dividend Yield: 3.1%
- Expense Ratio: 0.12%
- Top Holdings: American Tower, Prologis, Crown Castle, Equinix, Public Storage
- Best for: Long-term investors
VanEck Mortgage REIT Income ETF (MORT) – Best High Dividend REIT ETF
If you’re looking for an income-generating ETF, MORT may be the ETF for you. This REIT ETF has a high dividend yield potential, and it provides investors with a great return on investment.
MORT is a mortgage REIT ETF offered by VanEck Associates Corporation. MORT tracks the performance of mortgage REITs by replicating the MVIS®US Mortgage REITs Index.
- Dividend Yield: 13.33%
- Expense Ratio: 0.41%
- Top Holdings: Annaly Capital Management, Starwood Management Trust, AGNC Investment Corps
- Best for: Long-term investors
iShares Core U.S. REIT ETF (USRT) – Best Low Expense Ratio
USRT is a REIT ETF that launched on May 1, 2007 by BNY Mellon. Its assets are under the management of BlackRock.
The fund tracks the performance of U.S real estate investment trusts, and it matches the FTSE Nareit Equity REITs Index.
- Dividend Yield: 3.31%
- Expense Ratio: 0.08%
- Top Holdings: Prologis, Equinix, Public Storage and Realty Income
- Best for: Long-term investors
Vanguard Real Estate Index Fund (VGSLX) – Best REIT Index Fund
VGSLX holds 167 real estate investment trusts that purchase office buildings, hotels and other real estate property.
Since its inception on November 11, 2001, the fund’s lifetime performance has been tracked closely to its index benchmark, the Real Estate Spliced Index.
- Dividend Yield: 3.84%
- Expense Ratio: 0.12%
- Top Holdings: American Tower, Prologis, Crown Castle, Equinix, Public Storage
- Best for: Long-term investors
Fidelity MSCI Real Estate ETF (FREL) – Best for U.S. Equities
FREL gives investors exposure to mid-cap REITs, specialized REITs and real estate companies. The fund tracks the MSCI USA IMI/REAL ESTATE 25-25 NR.
FREL has one of the lowest expense ratios and highest dividends on this list, beating even our best overall pick, VNQ.
These two factors set this fund apart as an ETF to watch out for in 2023.
- Dividend Yield: 4.87%
- Expense Ratio: 0.08%
- Top Holdings: American Tower, Prologis, Crown Castle
- Best for: Long-term investors
Invesco KBW Premium Yield Equity REIT ETF (KBWY) – Best Small-Cap REIT
Unlike most of the ETFs on this list, KBWY tracks the performance of a dividend-yield-weighted index of small-cap REITs instead of capped-weighted indexes of large-cap equity real estate investment trusts.
While it has underperformed its benchmark over its lifetime, KBWY has a hefty dividend yield. It’s the most significant dividend on the list.
Its past performance may be off-putting to most investors, but it could be appealing to those looking to generate passive income.
- Dividend Yield: 5.52%
- Expense Ratio: 0.35%
- Top Holdings: Office Property Income Trust, Necessity Retail, Global Net Lease, Brandywine Realty Trust
- Best for: Beginners
iShares Residential and Multi-sector Real Estate ETF (REZ) – Best Residential REIT ETF
What began in 2007 as primarily residential REITs has grown and now has holdings in residential, healthcare and self-storage.
REZ tracks the performance of the FTSE Nareit All Residential Capped Index. At first glance, REZ’s low dividend yield and high expense ratio may make it an unattractive option for most investors.
You may be wondering why we put it on the list. With the bulk of its holdings made up of residential REITs, the fund is poised to benefit from a hot housing market, which could mean significant returns for fund investors.
- Dividend Yield: 1.9%
- Expense Ratio: 0.48%
- Top Holdings: Public Storage, Welltower, Avalonbay Communities REIT
- Best for: Short-term investors
Schwab U.S. REIT ETF (SCHH) – Best Actively Managed REIT ETF
SCHH invests in U.S. real estate investment trusts that are listed as equities. It is a passively managed ETF provided by Charles Schwab.
SCHH is composed of 135 holdings, and it closely tracks the DOW JONES All REIT Capped USD. SCHH has the lowest expense ratios on this list, making it the cheapest REIT.
The low expense ratio and the dividend yield are excellent for you as an investor because it means more money in your pockets.
- Dividend Yield: 2.1%
- Expense Ratio: 0.07%
- Top Holdings: American Tower, Prologis, Crown Castle, Equinix, Public Storage
- Best for: Beginners
Real Estate Select SPDR Fund (XLRE) – Best REIT Fund
XLRE was created in 2015 following the split of the GCIS financial sector. The fund holds primarily large-cap REITs and real estate stocks from the S&P 500, excluding mortgage REITs.
The fund has nearly $5 billion in AUM. The fund has tracked fairly closely to its benchmark since its inception.
XLRE has paid a solid dividend to its investors for almost a decade.
- Dividend Yield: 3%
- Expense Ratio: 0.70%
- Top Holdings: Prologis, American Tower, Crown Castle, Equinix, Public Storage
- Best for: Long-term investors
3 REIT ETF Honorable Mentions
Some great ETFs didn’t make the list, but they are still worth checking out. You can find them listed below.
Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI)
GREI takes a different investment approach than other ETFs on this list. The fund seeks to provide investors with long-term gains by seeking companies that are innovative and disruptive.
This is an outstanding growth stock and a perfect choice if you’re interested in future growth.
Vanguard Global ex-U.S. Real Estate ETF (VNQI)
The VNQI REIT ETF is different from the others listed in this article in that it tracks the index of non-US REITs. It has over 700 REITs in countries such as Japan, Australia and Hong Kong.
One of the significant benefits of this fund is that it offers larger dividends than the U.S. REIT ETFs.
Nuveen Short-term REIT ETF (NURE)
NURE invests in U.S. REITs with short-term leases. The fund has holdings in apartment buildings, hotels, self-storage facilities and manufactured homes.
NURE is low-cost, offers excellent potential returns and is less sensitive to inflation and interest rate hikes.
REIT ETF Investors Guide
Before you can decide on whether a REIT ETF is best for you, you need a basic understanding of this asset. Here is a quick guide that provides some basic information to help you make informed investing decisions.
Consider the following factors before investing in a REIT ETFs:
Portfolio Diversification – REIT ETFs provide more options and tend to have better chances at a good return when their portfolio is quite diverse.
The further the ETFs reach, the wider the market potential.
Net Operating Income (NOI) – Checking on the NOI for an ETF’s properties helps you see if they make good choices and maintain their investments well.
Properties with a stable and high NOI will provide much higher returns than unbalanced ones.
Leveraged or Total Assets – It’s not a surprise that a REIT ETF holding more assets has a better chance of turning a profit.
High-leveraged assets give you the chance to join a high-end investment that you wouldn’t usually be able to make on your own.
The bigger the investment, the better the return, even if you’re only making a small contribution to it.
What is a REIT ETF?
A REIT ETF is a passively managed fund that invests in REITs.
They combine the traits of REITs and ETFs and offer the benefits of both. This asset generates income by investing in a collection of publicly traded REITs.
Investors can invest in real estate without actively owning or operating the property, and they don’t have to actively select stocks.
What is a REIT Index Fund?
REIT index funds are mutual funds or ETFs that closely mirror or track the makeup of a chosen real estate index, such as the BofA Merrill Lynch US Real Estate Index.
However, unlike traditional mutual funds, REIT index funds act similar to an ETF in that it is managed passively. REIT index funds invest in a collection of stocks or bonds in a particular sector of the market.
This investment vehicle offers several benefits:
- reduced risk through diversification
- low costs
- long-term returns
- a passive trading strategy
How to Pick The Right REIT ETF
With all the options out there for REIT ETFs and a vast amount of conflicting investing opinions, it can be hard to choose.
How do you find the REIT ETF that’s right for you? Here are some tips for selecting the right ETF.
Investment goals
Are you looking for something short term or long term? Want a fund that offers growth potential or passive income?
Before selecting a fund, you should have a clear understanding of what your goals are for investing in an index fund. Determining your investment goals can help narrow down your options.
Once you have narrowed down your selection, you can choose a fund that best aligns with your investment goals.
Expense ratio
Cost can be a crucial factor when choosing the right exchange-traded fund. It’s best to find funds that align with your financial goals and fit within your budget.
Ideally, you want funds that have a low expense ratio. Expense ratios are the total cost associated with owning the fund. High fees and expenses can often put a damper on returns.
Look for ETFs that have low expense ratios; these indicate fewer fees and administrative costs, which means more money in your pocket.
Tracking performance
Most ETFs and index funds strive to track their benchmark index very closely, but this does not mean that the fund’s and benchmark’s performance always match up.
Check if the ETF tracks closely to the underlying index it follows. If the benchmark is performing well, then the ETF should also perform well.
While it may not always be an exact match, there should be a close correlation between the fund and the index it follows.
The fund’s tracking performance can give a clear picture of the fund manager’s investment strategies and how well those strategies are working.
Although past performance does not predict future performance, it can give you an idea of what you can expect.
Dividend yield
If generating income is your investment focus, you’ll want a fund with a high dividend yield and a history of consistent distributions.
The dividend can be an essential indicator of how the fund is doing. During difficult times, businesses will usually reduce or get rid of the dividend.
Risk tolerance
ETFs and index funds have typically been a low-risk option for investors because they offer diversification, which often helps manage risk during volatile times.
That said, while there are things you can do to minimize your risk when investing in ETFs and index funds, there are always inherent risks associated with investing.
There’s always the possibility that you will lose some or all of your money.
Before investing in a fund, it is wise to assess the potential risk involved: how much can you afford to risk?
I recommend consulting a financial advisor. They will be able to help you choose the best ETFs based on your financial goals and risk profile.
Which REIT ETF is Best for You?
REIT ETFs are an excellent option for investors looking to make long-term returns and passive income. However, with so many options out there, it can be difficult to find the best ETF for you.
So, how do you decide which to pick? There is no definite answer that works for everyone.
To choose the best real estate ETF for you, you have to consider your risk tolerance, financial goals, costs and investment strategy.
REIT ETF FAQ’s
Here are some commonly asked questions about REITs:
Are REIT ETFs a good idea?
That depends on the individual and his or her goals. That said, REIT ETFs provide consistent dividends, so if you’re looking to grow your money and earn passive income, then yes, they are a good idea.
Are REITs better than ETFs?
Owning either of these investments is a great option for any investor looking to build passive income.
To choose the option that’s best for you, you must consider your risk tolerance, goals, etc.
Are REIT ETFs a good investment?
REIT ETFs are great investments. They offer the advantages of both REITs and ETFs. REIT ETFs deliver consistent dividend yields, capital appreciation, diversification and competitive returns.
Do REIT index funds pay dividends?
Yes, REIT index funds pay dividends. REIT index funds pay either monthly, quarterly or semiannual dividends.
However, ETFs may not always pay a dividend.
Invest, borrow, and spend on one intuitive platform. Customize your strategies, automate the big picture, and let The Finance Super App® take care of the day-to-day—commission-free.
I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.
More Posts
