REITs allow simple investments in real estate and entice investors with high returns. We explain how the Real Estate Investment TrustsWe will introduce you to the interesting stocks and show you what you should look out for when investing in REITs.
The most important in a nutshell
- Real estate investment trusts are companies that generate profits from real estate and distribute more than 90 % of these profits to their investors
- With a REIT investment, you can profit from the real estate market even with small amounts
- These are listed stock corporations, so losses are also possible
- The selection of REIT shares is very large. Here are some particularly attractive sub-categories and stocks
What are REITS and how do they work?
Real estate is considered a very safe and lucrative investment: it offers its owners an attractive source of income through rent and leasing, almost always increases in value and is regarded as an excellent investment. Inflation protection. Their big disadvantage: the enormous capital requirement!
- Large sums of money are needed to purchase land and buildings
- Even for people with large assets, a property quickly leads to a dangerous lumpiness
- The capital tied up in this way reduces our financial flexibility
- In many cases, buying a property goes against the rules of a healthy, secure Money Managements.
This creates a real dilemma for investors. There are numerous attempts to make real estate investments possible without the high capital outlay. Among the most successful and popular are real estate investment trusts.
- REITs are companies that generate their revenues by renting, leasing, financing or trading in real estate.
- As a special type of company, they enjoy almost complete tax exemption. In return, they must distribute almost all profits to investors and meet other requirements.
Their great success is based above all on their ease of use: they are simple shares that you can buy and sell with a broker as usual. Even a transfer between securities accounts or the use of a Share savings plan are possible without any problems. With REIT shares as the underlying asset, it is also possible to Trade options.
Entry is possible with small sums and is therefore also ideal for small investors. If a REIT is in your Equity portfolioyou are credited with the profit distribution at regular intervals. REIT shares are therefore no different from other shares in formal terms, high-dividend shares.
Good to know:
A REIT does not always have to be a stock corporation. Although this legal form is prescribed for real estate investment trusts in Germany, there is considerably more freedom in other countries. However, this does not change the basic concept.
Extensive range and long history
REIT investment has been possible since 1960. The concept was first introduced in the USA with the declared aim of making the real estate market accessible to small investors and private individuals.
Since then, the model has been exported to numerous countries:
- Early locations include the Netherlands (introduced in 1969), Australia (1971) and Turkey (1989)
- Since 2007, there have also been German shares some offerings, the so-called G-REITs
- China (since 2003), India (since 2019) and the countries of Southeast Asia are considered exciting growth markets
Over the course of its long history, this asset class has developed into an attractive and proven investment. With several hundred REITS on offer today, the range is very extensive and allows investors to make broadly diversified investments in different regions or sectors (e.g. residential real estate, industry, warehouse space, data centers, etc.).
- Globally, the industry's average growth is around 3 % per year
- At around 40 %, the USA is by far the largest market and accounts for around half of this growth
- Other important markets are Europe (30 %), Asia and Oceania (23 %) and Latin America (5 %)
- China (8.8 %), Southeast Asia (around 8 %), Australia (6.7 %) and South Africa (5.7 %) recently recorded the highest annual growth rates
Despite global interest and attractive growth in various regions, the USA remains the top address for REIT investments. Investors particularly appreciate the mature market, wide choice and high yields in the United States.
It is therefore hardly surprising that nine of the ten largest REITs are from the USA.
REITs vs. real estate: advantages and disadvantages of the two asset classes explained
REITs offer particular advantages and disadvantages. Above all, the asset class must stand up to comparison with traditional real estate investments (purchase of buildings and land).
| REITs | Real estate | |
| Capital requirements | Very low (thanks to Fractional Shares already from 1 €) | Very high |
| Yield | High to very highHistorical: 12.6 % per year | LowHistorically: 1.3 % per year, with rental income 4.8 % |
| Volatility | Low to medium, depending on industry | Extremely low |
| Acquisition cost | Very low | Very high (high financial and organizational effort) |
| Diversification | Very easily possible | Very difficult, high risk of clumping |
| Tax burden | Applies as investment income (generally withholding tax) | Rental income: Are taxed at the income tax rate (14 - 42 %)Tax advantages: Through depreciation and amortization |
| Use | Flexible: Short positions via Short sale possible, Trade options possible | Medium flexibility. Profit possible through additional income or capital appreciation, leverage possible |
A REIT investment and the purchase of real estate have very different advantages. Real estate investment trusts offer a high degree of flexibility, easy access and very attractive returns. Property ownership, on the other hand, promises crisis protection, reliable income and can even bring tax advantages.
Both asset classes also have attractive unique selling points:
- REITs allow investments in real estate sectors that are otherwise inaccessible to private individuals. For example, you can use the trusts to invest in properties such as casinos, amusement parks, care facilities or prisons.
- Buying real estate, on the other hand, allows the use of a strong leverage: by acquiring through bank financing, the buyer only has to put up a fraction of the capital himself, but receives the entire property and all income in return. Although interest costs and repayments have to be deducted, this results in a very high return on equity.
The good news is that investors can easily combine both forms and thus benefit from both variants. Surpluses from real estate ownership can be invested very well in REITs. This quickly creates an extremely lucrative, broad-based real estate portfolio.
Yield comparison: REITs or real estate?
Every year, Credit Suisse analyzes the returns of various asset classes over very long periods in its "Investment Returns Yearbook". The direct purchase of real estate performs surprisingly poorly:
- The average inflation-adjusted increase in the value of buildings and land is only 1.3 % per year (calculated from 1900)
- There are pronounced high phases (in Germany, for example, in the 1970s or directly after reunification), but also phases of considerable losses (after 2008, in the mid-1990s)
- If rental income is included, the owners have gained 4.8 % per year
Particularly dramatic: The gain is borne entirely by metropolitan regions! Looking only at the performance outside popular cities, real estate investments have generated a loss of around EUR 2 % per year.
It is hardly surprising that these results cannot keep up with an equity investment. Over the same period, the S&P 500 has achieved a gain of around 9.96 % per year. Also A REIT investment would have paid off much more:
- REITs have been recorded separately since 1972. Since then, they have had an annual Average yield of 12.6 % generated!
- The financial crisis also affected REIT shares and reduced profits. However, despite the slump, they still generate very attractive 9 % on an annual average
- Further damage was caused by the decline in demand during the COVID crisis. Nevertheless, REIT investments still delivered 5.5 % per year between 2020 and 2025, more than direct real estate investments.
When it comes to returns, there is therefore no doubt: REIT shares clearly and permanently outperform direct real estate investments! With 12.6 % annual growth since 1972, they can easily outperform even most equity indices and other asset classes.
The deceptive security of real estate ownership
Houses, offices and the like are jokingly referred to as "concrete gold". A term that is supposed to indicate their enormous crisis resistance and value security. Unfortunately, the reality is not so rosy here either! Real estate also harbors considerable price risks:
- US real estate lost around 36 % in value over a seven-year period during the financial crisis
- After a rise immediately after reunification, things also went downhill in Germany in the mid-1990s. Owners lost more than 5 % per year!
- The bursting of the dotcom bubble led to long-term losses in the value of real estate property in almost all industrialized nations.
Overall, it can be said that real estate ownership actually provides very reliable protection against short-term fluctuations. Market corrections or a short-lived stock market crash have hardly any impact. However, in longer downward phases, real estate owners also suffer from falling prices.
There is currently the likelihood of a global recession due to current US trade policy. A bursting of the AI bubble could also lead to long-term damage, which could also have an impact on "concrete gold".
A REIT is also affected by such falls in value, but has significantly more correction options at its disposal. For example, the trusts can benefit from the fall in prices by making additional investments, while private individuals rarely have the capital to acquire additional properties.
Broadly diversified REIT investment: these forms are available
Real estate investment trusts are a very broad asset class with hundreds of companies available. For a better overview, they are divided according to how they work and the type of real estate they use:
1. equity REITs
This is the classic REIT investment: companies that actually own real estate and generate profits by renting, leasing or selling it. The majority of real estate investment trusts fall into this category. Therefore, a further distinction is often made based on the type of real estate:
- Residential real estate
- Student residences
- Office building
- Hospitals and other healthcare buildings
- Industry and logistics
- Retail trade
- Data centers
- Self Storage
- Hotels
- Prisons
- Forest areas
- Arable land
- Infrastructure
- Casinos
The different types of real estate also allow investors to set strategic priorities. The REIT investment thus offers good opportunities for diversification and yield optimization.
For example, private investors with a large number of technology stocks in their Equity portfolio (a common problem, since most Blue chip shares today are technology companies), create a targeted counterweight with a residential REIT. Such stocks are also likely to perform quite well in the event of a technology crisis.
2. mortgage REITs
In contrast to the equity variant Mortgage REITs do not own the properties. Instead, they make their profits by financing and trading in real estate securities.
Such real estate investment trusts buy long-term mortgages from the issuing banks at a preferential price (an offer that enables the banks to refinance and which they are therefore happy to accept).
They receive the necessary capital for a lower interest rate. The interest rate difference represents their profit.
Hybrid REITs
A real estate investment trust can combine both forms, actual real estate ownership and financing. Such "hybrid REITs" offer the advantage of broader diversification. Due to the tangible assets owned by the company, they are also considered more secure than pure mortgage REITs.
The best REITs: Which real estate investment trusts are particularly worthwhile?
REITs offer very different focuses that promise different returns and are subject to different trends. Currently, data centers in particular are enormous yield drivers. However, traditional residential REITs are also still in vogue, as they could benefit from upcoming interest rate cuts.
1. data centers
The current AI boom requires large amounts of computing power. New data centers are being built at full speed in all industrial nations to meet the demand. An investment in REITs that specifically build or manage such properties therefore promises high profits.
- A REIT investment in data centers is no longer an insider tip. Real estate investment trusts with this focus are experiencing a high level of interest and are already very expensive. These include Digital Realty and Iron Mountain.
- With more than 300 data centers worldwide and sales of more than USD 5 billion, Digital Realty is one of the largest providers in the segment. The very high P/FFO shows that entry into data center REITs is generally expensive.
- Iron Mountain is a long-established company whose data centers have benefited greatly from the AI hype. The share price has tripled in the last five years and makes for an attractive, but also expensive REIT share.
- Whether it is worth entering despite the high prices depends on your opinion of the AI trend. Those who expect further growth will not shy away from the high valuation of such REITs; those who expect the AI bubble to burst, on the other hand, should choose other real estate investment trusts.
- Trusts that are just starting to focus on data centers offer an alternative approach. One example is the British company Segro PLC, which is currently investing heavily in data centers.
2. residential REITs
A simple basic rule is: if interest rates fall, real estate (and therefore real estate investment trusts) become more valuable. When interest rates rise, the opposite is true.
The direction in which interest rates will develop is not clear at the moment.
- US trade policy in particular is weighing on the local economy, increasing the inflation rate and making interest rate cuts increasingly unlikely.
- Those who expect interest rates to fall are well advised to invest in residential REITs. All equity REITs (with actual real estate holdings) benefit in such situations, but residential space is considered the biggest beneficiary.
- Residential REITs are typical investments for this phase. BSR REIT, Camden Properties, Sun Communities or AvalonBay could be particularly worthwhile here.
3. special REITs
With specialized REITs, investors can take advantage of one of the greatest benefits of this asset class: Access to real estate that is normally denied to private individuals!
- Specialty offerings include gaming REITs such as Vici Properties, which generate returns through golf courses, racetracks, casinos and arcades. Well-known casinos such as Caesars or The Mirage in Las Vegas rent their space from such trusts.
- Forests and other agricultural land also represent exciting REIT investments. Rayonier, a company with extensive forest holdings and a focus on timber production, stands out here.
Tax situation for REIT investments
If you invest in a REIT, you will receive regular profit distributions. The interval depends on the trust in question. Some offers are even among the Shares with a monthly dividend!
As the companies generally generate their income through letting and leasing and sometimes declare it as a return of capital, misunderstandings occasionally arise. However, the tax situation of real estate investment trusts is very simple:
- The payouts are treated as regular dividend payments and credited to you via your broker
- The profit distributions are taxable. For most investors, the Settlement tax + solidarity surcharge
- Income from the sale of REITs is also treated as regular share gains
- Many REITs are subject to withholding tax, which depends on the location of the company. Thanks to double taxation agreements, you can offset or reclaim this burden
- Some trusts declare their distributions or parts thereof as return of capital. This is a repayment of capital, so no taxes are initially incurred! At the same time, however, the entry price is reduced by the RoC value. In the event of a later sale, the previously saved taxes are then incurred.
Good to know:
Return of capital distributions can act as a tax deferral. At CapTrader, these payouts are declared correctly so that investors can benefit financially; unfortunately, this is often not the case with other brokers.
Overall, the REIT investment works in the same way as an investment in shares or ETFs. Once the personal annual tax-free allowance has been exhausted, taxes must be paid on the profits made. As with other forms of investment, there are three useful methods for reducing the tax burden:
- Favorable test: You can have your personal income tax rate applied if it is lower than the flat-rate withholding tax of 25 %. All you have to do is apply to the tax office for a so-called "favorable tax assessment".
- Asset-managing limited liability company: A VvGmbH is a company to which you contribute your capital and manage and invest it there. There are considerable tax advantages waiting for you, which are particularly worthwhile for longer-term investments and larger assets. Savings are also possible with REIT distributions.
- International broker: Unlike German providers, an international broker such as CapTrader does not automatically pay taxes for you. You pay Trading taxes and co. only later as part of your tax return. This gives you a major time advantage, which results in a significantly higher return.
Good to know:
The above tax regulations and allowances apply to investors from Germany. There are slight variations in Austria (e.g. no allowance for capital gains). Swiss investors, on the other hand, do not have to pay capital gains tax if they hold REITs in their Wertschriftendepot have.
Conclusion: REITs offer attractive returns through real estate
A real estate investment trust is a special type of company that invests in real estate or its financing and must pay out almost all of its profits to shareholders.
REITs were introduced back in the 1960s with the aim of providing private investors with simple and inexpensive access to the real estate market. And it is precisely in this function that they still shine today! The REIT investment works like a regular share purchase via your broker and is possible with even the smallest sums.
This creates a huge advantage over the direct purchase of houses, land, etc. However, REIT shares are not only more accessible than physical property: they also offer an average yield that is almost ten times higher! While real estate investments only generate around 1.3 % per year over a long period of time, REITs generate a strong 12.6 %.
Only in terms of security do they have to admit defeat to real estate ownership. As they are listed companies, crises and crashes can have a negative impact on share prices. Homeowners, on the other hand, are much less affected by these changes.
A large selection of REIT shares from a wide range of sectors and regions is available. Stocks that invest in data centers currently promise high profits. The high demand for computing power from AI is fueling demand and, as a result, prices.
All real estate investment trusts with physical real estate holdings ("equity REITs") also benefit from falling interest rates. If you anticipate a fall in the prime rate, residential REITs are particularly suitable.
The good news at the end: REITs can be traded flexibly on the stock exchange like other shares. With a Short sale they can therefore also bet against the real estate market. They are also treated like other securities for tax purposes. An international broker such as CapTrader offers advantages here with the Trading tax.
