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What are the Different Types of REIT Funds?

A. Leverkuhn
A. Leverkuhn

The investment opportunities known as REIT funds vary quite a bit within their niche in the financial market. There are many different kinds of REIT funds that investors can get involved in. Different funds invest in either properties, mortgages, or both. They may also have much different acquisition strategies, deal with debt differently, or choose acquisitions according to the logic of the REIT managers.

A Real Estate Investment Fund is an investment product offered by a company in specific ways, according to the laws on how these funds can be set up. The REIT has to distribute most of its taxable income to investors, and invest mainly in real estate. These funds can be further distinguished by the kind of commercial residential property they target, such as, for example, retail REITs that focus on properties housing retail operations.

Woman holding a book
Woman holding a book

In addition to differences in the diverse strategies of REITs, the actual portfolios vary widely. When REITs do invest primarily in actual real estate, the difference between them depends on what kind of real estate they acquire. Some basic kinds of REITs include commercial, residential, or mixed.

Investors can also choose from different kinds of REIT funds that include varying access, levels of diversification, or expense to yield ratios. Some REIT funds are traded on market exchanges, where they can be bought or sold during the day, and easily tracked. Professionals refer to these as “exchange traded REITs” which are similar to other exchange traded funds, or ETFs. Other REITS only offer periodic trading through brokers. Some of these are actively managed REITs that include more hands-on work by fund managers, while others are passively managed, and may not include as much internal work toward maximizing potential gains.

All of these different kinds of REIT funds are set up in very unique ways. Each offers a prospectus for the investor and other resources where those interested in “buying into” an REIT can find out about the game plan of its management. Some REITs are more geared toward keeping cash on hand, while others might be very proactive about snapping up new properties. Learning more about the goals of REIT management is a part of what investors call “due diligence;” this just means looking at the facts around a financial product before putting money into it. The best REIT funds offer a lot of details to potential investors about how the REIT is set up, and about what the underlying securities and assets are.

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Discussion Comments


I know there are many different REITs. Some are retail, office, industrial, residential, and health care REITs. There are some REITs like a Cole REIT might invest in multiple areas. Cole invests in retail, office and industrial real estate.

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