August 8, 2025
It’s real estate investing without the roof repairs
Here’s the thing: Buying property isn’t the only way to invest in real estate. That’s the appeal behind REITs, which are real estate investment trusts. These investments allow you to tap into the real estate market without ever owning property yourself. Here’s how they work in plain English, what sets them apart from other real estate investments, and why they may or may not be a fit for your portfolio.
How Do REITs Work?
REITs are companies that typically own or finance income-producing real estate. You can think of them like large real estate portfolios where you can invest in a share through your brokerage account, just like a stock. When you invest in a REIT, you’re not purchasing individual buildings; you’re buying into the income they generate from rent or mortgage payments.
REITs vs. Owning Property
If you’re learning how to get started in real estate investing, comparing REITs with buying property outright can help you see which path fits your goals.
|
Feature |
REITs |
Owning Property |
|
Commitment |
Low effort |
High effort |
|
Investment |
Varies |
$20K or more |
|
Liquidity |
Easier to sell |
Harder to sell |
|
Diversification |
High |
Low to none |
|
Risk |
Spread out |
Tied to one asset |
What Makes a REIT, a REIT?
Plenty of companies invest in real estate, but not all of them meet the criteria to be considered a REIT. To get that label and the tax benefits that come with it, they need to follow some strict rules. These requirements are meant to keep REITs focused on real estate and structured in a way that regularly pays income back to investors.
Here’s what typically defines a REIT:
- Maintain at least 75% of total assets in real estate
- Generate at least 75% of income from rents, interest, or sales
- Return at least 90% of profits to investors as dividends
- Operate as a corporation with a formal board of directors
- Include at least 100 individual shareholders
What Kinds of REITs Are Out There?
Not all REITs are created equal. Different types focus on various strategies and types of real estate. Here’s a sampling:
Equity REITs
These REITs own and manage income-producing properties. The CliffNotes version is, you make money when tenants pay rent.
Mortgage REITs
The proper term is Mortgage Real Estate Investment Trusts, or mREITs for short. Instead of owning buildings, mREITs loan money to people who do. Investors earn money based on the interest collected, not the rent.
Hybrid REITs
They blend the strategies of both equity and mortgage REITs. That means they invest in physical properties that generate rental income and in real estate loans or mortgages that bring in interest. This mixed approach gives them more flexibility. However, it also means their performance can be tied to housing market trends and lending conditions.
Public vs. Private REITs
REITs can be presented to investors in various ways. Publicly traded REITs are available on stock exchanges, making them easily accessible for purchase and sale, just like any other stock.
Non-traded REITs aren’t publicly listed, which means they’re less influenced by market fluctuations and may offer more stable returns. Just be sure to do your homework before investing. Remember, fees and portfolio quality can vary widely, so it’s important to choose a REIT with reasonable costs and solid diversification.
Then there are private REITs, which are usually limited to accredited investors and tend to have higher minimum investment requirements, less liquidity, and less regulatory oversight.
So, How Do You Start Investing in a REIT?
It’s pretty straightforward.
- Open a brokerage account: If you’ve ever bought a stock, you’re already set up.
- Choose your journey: Invest in a single REIT or go with a diversified REIT fund.
- Decide your budget: Minimum investments vary, so set your comfort zone.
- Make your move: Place your order and (hopefully) start collecting dividends.
Traditional REITs vs Flywheel Portfolio
Flywheel Portfolio is Groundfloor’s enhanced twist on the traditional REIT.
Instead of tying up your money in long-term properties, Flywheel Portfolio spreads your investment across hundreds of short-term real estate loans with automatic reinvestment, frequent liquidity events, and a clear end point around 36 months. Investors also have greater visibility around assets and their performance. You can open an account with $100.
Conversely, most REITs often involve bigger buy-ins, longer timelines, and less transparency. Additionally, if you want out, you’ll need to sell your shares at whatever the market will pay. It’s real estate investing, but with more waiting, less control, and usually more zeroes to get started.
Which Approach Is Right for You?
Options like REITs and Groundfloor’s Flywheel Portfolio make it possible to invest in real estate without the headaches of being a landlord. While both are considered passive investments, that cater to different preferences and priorities.
Your ultimate choice will mostly likely come down to how much control you want, how transparent the investment is, and how quickly you’d like to see returns.
For instance:
- REITs are a good option if you’re looking for hands-off investing and prefer the convenience of buying and selling shares through your existing brokerage account.
- Flywheel Portfolio might be a better fit if you want more visibility into what you’re investing in, prefer a shorter investment timeline, and like the idea of your money being automatically spread across hundreds of real estate projects.
