How to Invest in REITs: A Step by Step Guide for Beginners

Alright, this is the part a lot of you have been waiting for. We’ve covered what REITs are, the different types, and the various ways they’re structured. Now let’s talk about how you actually put your money to work.

Chapter 4 of Real Estate Investment Trust Investing by Mike Hartley lays out a practical, step-by-step process for getting started with REIT investing. No theory here. Just the actual steps.

The 6-Step Process

Hartley breaks the investment process into six stages. I think this is a solid framework, especially if you’re new to investing in general.

Step 1: Learn the Basics

You’ve already done this if you’ve been following this series. You know what REITs are, how they make money, the three types (equity, mortgage, hybrid), and the difference between publicly traded and private options.

But Hartley emphasizes that learning is ongoing. Markets change, regulations evolve, and new REIT sectors emerge. Stay curious and keep reading. The more you understand, the better your investment decisions will be.

Step 2: Research REIT Types and Sectors

Now you need to figure out which types of REITs interest you. And within those types, which sectors.

REITs cover a huge range of real estate sectors:

• Residential (apartments, single-family rentals)
• Commercial (office buildings, retail spaces)
• Healthcare (hospitals, senior living, medical offices)
• Industrial (warehouses, distribution centers, logistics)
• Hospitality (hotels, resorts)
• Data centers (server facilities for tech companies)
• Infrastructure (cell towers, fiber networks)

Each sector behaves differently depending on economic conditions. During a recession, hospitality REITs might suffer while healthcare REITs stay stable. When e-commerce is booming, industrial and logistics REITs tend to do well. Understanding these dynamics helps you make smarter choices.

Step 3: Scrutinize Performance

This is where the real research happens. Before you invest in any specific REIT, Hartley says you should dig into several key areas:

Past performance. Look at the REIT’s track record over multiple years. How have their dividends trended? Have they been consistent, growing, or declining? What happened to the share price during downturns? Past performance doesn’t guarantee future results, but it tells you a lot about how the company is managed.

Management team. Who’s running the show? Experienced management with a strong track record matters. Look at how long the leadership team has been in place, what other companies they’ve run, and whether they have a clear vision for the company.

Business strategy. What’s the REIT’s plan? Are they focused on acquiring new properties, developing from the ground up, or improving existing ones? Is the strategy conservative or aggressive? Make sure it aligns with your own risk tolerance.

Financial health. Check the debt levels. A REIT with too much debt is vulnerable to rising interest rates and economic downturns. Look at the debt-to-equity ratio and interest coverage ratio. Also look at occupancy rates for their properties. High occupancy means steady income.

Market trends. Is the sector the REIT operates in growing or shrinking? A warehouse REIT benefits from the rise of e-commerce. A traditional retail REIT might be facing headwinds from the shift to online shopping. Pay attention to where the world is heading.

Step 4: Pick Your Platform

To buy publicly traded REITs, you need a brokerage account. And these days, you have tons of options.

Traditional brokerages like Fidelity, Schwab, and Vanguard offer full-service platforms with research tools, educational resources, and customer support. They’re solid choices if you want a lot of hand-holding or access to detailed analysis.

Online brokerages and apps like Robinhood, Webull, or Interactive Brokers tend to have lower fees (many offer commission-free trading) and more streamlined interfaces. They’re great if you already know what you want to buy and don’t need as much research support built into the platform.

When comparing platforms, Hartley suggests looking at:

• Trading commissions (many are now zero, but check)
• Account minimums (some require a minimum deposit to start)
• Available research tools (screeners, analyst reports, earnings data)
• User interface (can you actually find what you need?)
• Account types (taxable, IRA, Roth IRA)

Personally, I think the platform matters less than actually getting started. Pick one that feels comfortable and open an account. You can always switch later.

Step 5: Invest

Time to actually buy shares. Here are some things to consider:

Start small. You don’t need to go all in on day one. Buy a small position in one or two REITs and get comfortable with how it works. Watch how the share price moves, when dividends get paid, and how you feel about the ups and downs.

Don’t chase yield. A REIT with a 12% dividend yield might look amazing, but extremely high yields can be a red flag. It might mean the share price has dropped significantly (which inflates the yield percentage) or that the dividend isn’t sustainable. A steady 4-5% yield from a well-managed REIT is often better than a flashy 10%+ yield from a risky one.

Know when to sell. Hartley advises thinking about exit criteria before you buy. What would make you sell? A dividend cut? A change in management? The REIT shifting its strategy? Having a plan prevents emotional decision-making.

Consider dollar-cost averaging. Instead of investing a lump sum all at once, spread your purchases over time. Buy a fixed dollar amount each month regardless of the share price. This smooths out the impact of price swings and removes the pressure of trying to time the market perfectly.

Step 6: Monitor Your Investments

Buying is not the end. You need to keep an eye on your holdings. Not obsessively, checking every hour. But regularly.

Review quarterly earnings reports. Pay attention to occupancy rates, rental income trends, and dividend announcements. Keep up with news about the sectors your REITs operate in.

And be honest with yourself. If a REIT is consistently underperforming or if the fundamentals have changed, don’t be afraid to sell and move your money somewhere better. Loyalty to a stock doesn’t pay dividends. Good investments do.

Diversification: Don’t Put Everything in One Basket

This is one of the biggest themes in Hartley’s book, and he really drives it home in this chapter.

Diversify across sectors. Don’t put all your REIT money into one type of property. If you own residential, commercial, and healthcare REITs, a downturn in one sector won’t destroy your entire portfolio.

Diversify across geographies. Some REITs focus on specific regions. Others are national or international. Spreading across different markets protects you from local economic problems.

Diversify across asset classes. REITs should be part of your portfolio, not your entire portfolio. Mix them with stocks, bonds, and other investments. The combination creates a more resilient financial picture.

Hartley suggests that most investors allocate somewhere between 10-25% of their portfolio to REITs, but the right number depends on your goals, risk tolerance, and time horizon.

REIT ETFs and Mutual Funds

One thing worth mentioning that Hartley touches on: if picking individual REITs feels overwhelming, you can invest in REIT ETFs or mutual funds instead. These funds hold a basket of different REITs, giving you instant diversification with a single purchase.

It’s a solid option for beginners who want REIT exposure without doing deep research on individual companies. You give up some control over which specific REITs you own, but you gain simplicity and diversification.

Wrapping Up

The investment process isn’t complicated, but it does require some effort upfront. Learn the basics, research your options, evaluate specific REITs carefully, open a brokerage account, start investing, and keep monitoring.

The biggest mistake you can make is waiting for the “perfect” time to start. There’s no perfect time. Markets go up and down. Interest rates change. But over the long term, REITs have been a reliable way to generate passive income and build wealth through real estate.

If you’ve been following this whole series, you now have a solid foundation. You understand what REITs are, the different types, how they’re structured, and how to actually invest in them. That’s more knowledge than most people have about this asset class.

The rest is up to you.

This is Part 5 of a blog series covering “Real Estate Investment Trust Investing: The Secret to Passive Income from REITs” by Mike Hartley (2023).

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