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If you’re eager to earn passive income, real estate investment trusts (REITs) offer a straightforward way to access consistent returns from real estate without the hassle of managing properties. And they’ve outperformed traditional stock market indexes over long-term investing periods.
Key Takeaways
- REITs offer a passive income stream with dividend yields of about 4%. In the long term, REITs have often outperformed the S&P 500.
- Individual REITs provide higher potential returns but come with more risk, while REIT exchange-traded funds (ETFs) offer diversification and stability.
- REITs can provide exposure to various real estate sectors—such as office, residential, and commercial—enabling broader diversification.
Who Should Invest in REITs?
REITs are the ideal asset class for someone who wants to invest in real estate without directly buying and managing properties, said San Francisco-based financial advisor Said Israilov, co-founder of Israilov Financial.
Israilov recently recommended REITs to a client who reached out eagerly wanting to invest in real estate after seeing his neighbor generating rental income from several properties. However, the client also had a demanding day job and two young kids, so he didn’t have enough time to properly manage a rental property and its tenants. REITs were a good alternative for him.
How Much Can You Earn with REITs?
Through REITs, Israilov said, you can gain exposure to real estate that’s already professionally managed without necessarily making a large initial investment, in addition to dividend yields of about 4%. That compares to a S&P 500 dividend yield of 1.27%. Plus, REITs can provide sector diversification through office, residential, and commercial real estate offerings.
When looking at average annualized returns from January 1990 to October 2020, REITs outperformed U.S. stocks more than 56% of the time, according to an analysis by Nareit, the National Association of Real Estate Investment Trusts. REITs were even more likely to outperform U.S. stocks over long-term investment periods of 19 years or more.
How to Invest in REITs
Investors can gain exposure to REITs by buying publicly traded REITs or ETFs that own REITs. You buy these on an exchange or brokerage just as you would other stocks and ETFs.
Financial advisor Chad Olivier, CEO of the Louisiana-based Olivier Group, said buying individual REITs such as Prologis and Equity Residential can offer higher yields than REIT ETFs, but the lack of diversification comes with more risk.
“It’s equivalent to buying an individual stock, so you need to make sure you’re on top of the research,” Olivier said. “Each REIT is different, and oftentimes, one might be more concentrated in certain sectors.”
On the other hand, REIT ETFs—such as the Vanguard Real Estate ETF and the Schwab US REIT ETF—can provide you with broader exposure because they own many different individual REITs. The funds pool each REIT’s profit and distribute that to investors. As a result, REIT ETFs generally provide lower risk to investors and more moderate yields in the 2.5% to 4% range. For example, the MSCI US REIT Index had a dividend yield of 4.10% as of April 2025. Just be aware that most REIT dividends are taxed as ordinary income, unlike qualified dividends from stocks that are taxed at the lower capital gains rate.
In the long term, REITs tend to beat out the S&P 500 on total return. As of April 2025, the FTSE Nareit All Equity REITs Index, which tracks the performance of the U.S. REIT industry, had outperformed the S&P 500 over one-year, 25-year, and 50-year periods. The FTSE Nareit All Equity REITs Index had a 25-year annual total return of 9.53%, compared to 7.52% for the S&P 500.
More Ways to Earn Passive Income with Real Estate
If you’re looking to earn passive income through other means, Cynthia Meyer, the founder of Real Life Planning, suggests real estate crowdfunding or “house hacking,” which involves buying a multifamily property, living in one property, and renting out the others—or using a property you already own to generate extra income. Think: Airbnb or taking in roommates. “It’s passive income on your tax return, but it still takes a lot of work,” Meyer said.
The Bottom Line
REITs make real estate investing accessible to everyday investors while offering steady dividends with long-term growth potential. For risk-averse investors, REIT ETFs are a solid choice, but good research can help you land higher-yield options. No single method suits everyone, so explore multiple options to diversify your passive income.
