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Investing in real estate stocks

Pros and cons of investing in residential, commercial and industrial real estate.

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There are three segments of the real estate sector and multiple ways to invest, each with their own benefits and risks.

What are real estate stocks?

Real estate sector consists of stocks from companies that own, develop and manage properties. The Global Industry Classification Standard defines 11 stock sectors, each characterized by a specific industry or slice of the market.

The real estate sector can be further broken down into residential, commercial and industrial real estate. Some real estate companies and trusts specialize in buying only one type of property while others manage multiple segments of the sector.

Ways to invest in real estate sector stocks

The real estate sector is dominated by real-estate investment trusts (REITs): companies that purchase and maintain income properties. REITs are publicly traded trusts that are bought and sold like stocks. They offer the opportunity to participate in real estate an investor might otherwise not have access to, like shopping malls and business parks.

Those looking to explore the real estate sector can invest in REITs or real estate ETFs.

Invest in REITs

If you’d prefer to invest in individual real estate companies, REITs are bought and sold through a brokerage account.

Most trading platforms come with research and analysis tools designed to help you compare and select investments across sectors. Stock screeners can help you narrow your options to investments available in the real estate sector, listing real estate companies and REITs alongside key metrics to help you assess your options.

Popular stocks in the real estate sector include:

  • Simon Property Group Inc (SPG)
  • SL Green Realty Corp (SLG)
  • Ventas Inc (VTR)
  • Vornado Realty Trust (VNO)

Pros

  • Support individual companies. Investing in REITs gives you the opportunity to back individual companies and trusts based on your interests, values and investment goals.
  • Highly liquid. Unlike buying and selling physical property, you can swap REITs online in a matter of minutes.
  • Dividends. Like stocks, REITs pay dividends, which can act as a source of income.

Cons

  • Limited exposure. To compete with the broad selection of securities available through a single ETF, you’d have to purchase many individual stocks.
  • Volatile. REITs are easily influenced by interest rate fluctuations, making them inherently more volatile than ETFs.

Invest in real estate ETFs

An ETF — or exchange-traded fund — is a bundle of securities that track a specific stock sector or market index. Real estate ETFs track REITs and indexes for the real estate market. Instead of purchasing a single stock, ETFs offer access to a collection of stocks in a specific stock market sector, providing more comprehensive exposure.

Like stocks, ETFs can be bought and sold through a brokerage account. When you purchase an ETF, you pay an expense ratio: an annual cost expressed as a percentage of the funds invested and can range from 0.03% to 2.5%.

Popular ETFs in the real estate sector include:

  • iShares Cohen & Steers REIT ETF (ICF)
  • iShares Core U.S. REIT ETF (USRT)
  • iShares U.S. Real Estate ETF (IYR)
  • Real Estate Select Sector SPDR ETF (XLRE)
  • Schwab US REIT ETF (SCHH)
  • SPDR Dow Jones REIT ETF (RWR)
  • Vanguard Real Estate Index Fund (VNQ)

Pros

  • Low risk. ETFs are less risky than stocks because they’re a collection — not a singular entity. The diversity of ETFs helps safeguard the fund from potential losses.
  • Portfolio diversification. Buying into an ETF broadens your portfolio with a single purchase.

Cons

  • Lower dividends. Dividends from an ETF may have trouble competing with high-yield stocks.
  • ETF fees. While it’s possible to swap stocks commission free, ETFs carry expense ratios that are typically unavoidable.

How is the real estate sector performing?

The stock market is in constant flux, and individual stocks can change prices second by second. But you can use the performance of ETFs to gauge the average performance of a stock market sector over time. The graph below tracks the Real Estate Select Sector SPDR ETF (XLRE).

Why invest in real estate stocks?

Real estate stocks and ETFs typically offer dividends, which act as passive income. Better yet, real estate assets tend to be viewed as a stable investment, as they’re backed by physical property and often have long-term contracts or lease agreements, which can stabilize incoming cash flow.

Real estate investments can diversify your portfolio, while hedging against inflation. By investing in real estate stocks or funds, you own a piece of a tangible asset without purchasing and maintaining the property firsthand. It’s a practical option for those who want to diversify their portfolio with real estate but don’t want to own their own property.

What unique risks does the real estate sector face?

The profitability of the real estate market is closely correlated with occupancy rates and property values. If property values fall, so will share prices.

REITs also tend to be more volatile than physical properties, so while you benefit from having the property managed on your behalf, you also take on more risk.

Compare online brokers

If you want to buy stocks or ETFs in the real estate sector, you’ll need to start by opening a brokerage account. If you’d prefer to invest in real estate more directly, you can also compare other ways to invest in real estate.

Name Product Available asset types Stock trade fee Option trade fee Annual fee
You Invest
Stocks
Bonds
Mutual funds
ETFs
$0
$0 + $0.65/contract
0%
Commission-free online stock, ETF and options trades on a beginner-friendly platform.
INVESTMENT PRODUCTS: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Tastyworks
Stocks
Options
ETFs
Futures
$0
Stocks & ETFs: $1/contract to open, $0 to close, $10 max/leg
Futures: $2.50/contract to open, $0 to close
0%
Trade stocks, options, ETFs and futures on mobile or desktop with this advanced platform.
Robinhood
Stocks
Options
ETFs
Cryptocurrency
$0
$0
0%
Make unlimited commission-free trades in stocks, funds, and options with Robinhood Financial.
Webull
Stocks
Options
ETFs
$0
$0
0%
Margin financing rates start at 3.99%. No monthly subscription fees for margin.
Gatsby
Options
$0
$0
0%
Make commission-free trades for or against companies and ETFs.
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Compare up to 4 providers

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Bottom line

The real estate sector offers the opportunity for stable dividends backed by physical assets, but isn’t immune to risk. Investors should be wary of shifting property values and occupancy rates before they invest.

Research your trading platform options to find the brokerage account best suited to your needs.

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