No REIT investment is completely risk-free. Whether a Real Estate Investment Trust is relatively conservative or carries significant risk depends on the type of REIT, the properties or loans it owns, its debt level, management, fees, and how easily investors can sell their shares.
The first step when asking are REITs safe is determining what type of REIT you are evaluating. Publicly traded REITs, non-traded REITs, private REITs, equity REITs, and mortgage REITs can have very different risk profiles.
Publicly Traded REITs Have Market and Real Estate Risk
Publicly traded REITs trade on major stock exchanges, so investors can generally buy or sell shares relatively easily. That liquidity can be an advantage, but it also means the share price can move with the broader stock market, interest rates, economic conditions, real estate fundamentals, and investor sentiment.
The underlying real estate still matters. Occupancy, rental income, tenant quality, property values, operating expenses, geographic concentration, and the amount of debt used by the REIT can all affect performance.
If you are new to this investment structure, our explanation of what a REIT is provides additional background.
Non-Traded and Private REITs Can Have Additional Risks
Non-traded REITs are not listed on a national stock exchange. This can reduce day-to-day changes in a quoted market price, but it does not make the investment safer. Investors may have fewer opportunities to sell their shares, and redemption programs can be limited, modified, or suspended.
Valuation can also be less transparent because there is no continuously quoted market price. Investors should carefully review how the REIT determines its share value, what fees are charged, when shares can be redeemed, and what circumstances could restrict liquidity.
Private REITs can have additional differences in disclosure, investor eligibility, valuation, and liquidity. Investors should review the specific offering documents rather than assuming that one REIT operates like another.
Equity and Mortgage REITs Face Different Risks
Equity REITs generally own income-producing real estate. Their results depend heavily on property fundamentals such as occupancy, rents, operating costs, tenant credit quality, property values, financing, and conditions within the real estate sectors they own.
Mortgage REITs primarily invest in mortgages, mortgage-backed securities, or other real estate debt. Their risk profile can be affected by leverage, interest rate changes, credit losses, financing costs, and changes in the value of their mortgage investments.
What Should You Review Before Investing in a REIT?
Rather than judging a REIT simply as “safe” or “unsafe,” evaluate the specific investment. Important factors can include its property or loan portfolio, debt and leverage, tenant concentration, management structure, fees, dividend coverage, liquidity provisions, redemption rules, and potential conflicts of interest.
You can explore these issues in more detail in our guide to REIT investment risks.
Real estate investors should also understand that REITs are only one way to gain exposure to real estate. The ownership structure, liquidity, management responsibilities, tax considerations, and risks can differ significantly from directly owned investment property and other fractional real estate structures. Our REIT resource center provides additional information for evaluating these differences.