How to Invest in REITs and Earn Passive Income Through Real Estate

Real estate has long been one of the most reliable ways to build wealth. But for many aspiring investors, the high costs of buying and managing property can seem out of reach. The good news? You don’t have to buy a house or deal with tenants to earn passive income through real estate.




Enter REITs — Real Estate Investment Trusts — one of the most accessible and beginner-friendly ways to get started in real estate investing.
In this article, we’ll explore:

• What REITs are
  
• How they generate passive income
  
• The types of REITs available
  
• How to start investing (even with $100 or less)
  
• Pros, cons, and key tips for success
  

Whether you're a total beginner or looking to diversify your investment portfolio, this guide will help you make smart, informed decisions about earning steady passive income through REITs.


What Is a REIT?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate. These properties may include:

• Apartment buildings
  
• Shopping malls
  
• Office spaces
  
• Hospitals and nursing facilities
  
• Warehouses and data centers
  
• Hotels and resorts
  
• Infrastructure projects (cell towers, pipelines, etc.)
  

REITs pool money from individual investors to fund these projects and, in return, pay out a portion of their profits as dividends. In fact, REITs are legally required to distribute at least 90% of their taxable income to shareholders, making them a consistent and reliable source of passive income.


How REITs Generate Passive Income
When you invest in a REIT, you are essentially buying shares in a company that owns real estate. The income generated from rent, property sales, or mortgage interest is collected by the REIT and then paid out to shareholders in the form of dividends.
Here’s how the passive income works:

1. The REIT collects revenue from its properties (rent, leases, financing interest, etc.).
   
2. It deducts operating costs, taxes, and maintenance.
   
3. It distributes the remaining profit — usually quarterly — to investors like you.
   

For example, if a REIT earns $100 million in rental income and has $80 million in expenses, it must distribute 90% of the $20 million in profits — or $18 million — to shareholders.
That means if you own 1% of the REIT shares, you’ll receive $180,000 in annual dividends. While most investors will start small, this model scales well as you grow your investment.


Types of REITs You Can Invest In
There are several types of REITs, each with different levels of risk and reward. Here’s a breakdown:
1. Equity REITs (Most common)

• Own and manage income-producing properties
  
• Generate revenue primarily from rents
  
• Offer regular dividend payouts
  

Example: Public Storage, Realty Income Corp
2. Mortgage REITs (mREITs)

• Invest in real estate debt (mortgages and loans)
  
• Earn income from interest payments
  
• Tend to have higher yields but also higher risk
  

Example: Annaly Capital Management, AGNC Investment Corp
3. Hybrid REITs

• Combine equity and mortgage strategies
  
• Provide both rental and interest income
  

4. Publicly Traded REITs

• Listed on major stock exchanges (NYSE, NASDAQ)
  
• Easily bought and sold like stocks
  

5. Private or Non-Traded REITs

• Not listed on exchanges
  
• Less liquid but sometimes offer higher returns
  

Why REITs Are Great for Passive Income
✅ Consistent Cash Flow: REITs are structured to pay out dividends regularly — often every quarter — providing steady passive income.
✅ Low Barrier to Entry: You can start investing with as little as $100 on platforms like Fundrise, Public.com, or Fidelity.
✅ Diversification: Gain exposure to real estate without owning physical property. Your money is spread across multiple assets instead of being tied up in one building.
✅ No Landlord Headaches: No tenants, toilets, or maintenance calls. The REIT handles property management for you.
✅ Liquid Investments: If you invest in publicly traded REITs, you can sell your shares easily like you would with stocks.
✅ Tax Advantages: REIT dividends can qualify for deductions under the 20% pass-through income rule (consult a tax advisor for your situation).








How to Start Investing in REITs: Step-by-Step
Step 1: Set Your Investment Goal
Decide whether your focus is:

• Regular passive income (look for high-dividend REITs)
  
• Long-term growth (choose REITs with rising share prices)
  
• Balanced returns (hybrid REITs)
  

Step 2: Choose Your Platform
You can invest in REITs through:

• Stock brokers like Vanguard, Charles Schwab, Fidelity
  
• Investment apps like Public.com, Robinhood, M1 Finance
  
• Real estate platforms like Fundrise, DiversyFund, or Streitwise
  

Step 3: Pick the Right REITs
Use filters like:

• Dividend yield (look for 4%–10% for income)
  
• Historical performance
  
• Sector (residential, commercial, data centers, etc.)
  
• Management team quality
  

Some popular REITs include:

• Realty Income (O): Monthly dividend payments
  
• American Tower (AMT): Cell tower REIT
  
• Prologis (PLD): Warehouses and industrial real estate
  
• Simon Property Group (SPG): Malls and retail centers
  

Step 4: Start Small and Diversify
Start with as little as $100, then dollar-cost average (invest small amounts regularly) to build your position over time.
Step 5: Reinvest Your Dividends
Many REITs offer DRIPs (Dividend Reinvestment Plans) that automatically buy more shares for you with each payout — growing your passive income over time.


REIT Investment Example
Let’s say you invest $5,000 in a REIT with an average annual dividend yield of 6%. Here’s what your passive income could look like:

• Year 1: $300 in dividends
  
• Year 5 (with reinvested dividends): ~$1,725 in total passive income
  
• Year 10 (compounded): ~$4,250+
  

All without buying, managing, or flipping a single property!



Pros and Cons of Investing in REITs

Pros	Cons
Passive income from real estate	Dividends are taxed as ordinary income
Low capital required to get started	Some REITs are volatile in downturns
No property management required	Not all REITs outperform the market
Easy to buy/sell like stocks	Dividend payments can vary
Diversifies your investment portfolio	Less control over individual properties

Common Questions About REITs
✅ Can I lose money in REITs?
Yes. Like all investments, REITs come with risks. Share prices can drop, and dividends aren’t guaranteed. However, diversifying across multiple REITs and sectors can reduce your exposure.
✅ Are REITs better than rental property?
That depends on your goals. REITs are more passive and liquid, while rental properties offer more control, tax benefits, and potential leverage.
✅ Are REITs good for beginners?
Absolutely. They're a low-risk entry point into real estate, ideal for new investors who want passive income without the stress of being a landlord.


Final Thoughts: REITs = Real Estate for Everyone
You don’t need to own property to build wealth through real estate. REITs are a smart, simple, and scalable way to earn passive income, diversify your investments, and start benefiting from the real estate market — no tenants or mortgages required.
Whether you're investing $100 or $10,000, REITs offer an accessible path to financial freedom through real estate.
So if you’ve been wondering how to invest in real estate without buying property, REITs might just be your best first step.