REITs 101: Seven Types of Equity REITs

Welcome back to our series on mastering REIT investments! In our last article, we introduced you to the basics of REITs. In this article, we’ll dive deeper into the different types of REITs, particularly the various categories of equity REITs.

You can find the other articles in this series below:

Part 1: Understanding the Basics

Part 3: Six Key Metrics to Watch for REITs

Part 4: Building a Diversified REIT Portfolio

Let’s dive in to Part 2: The Seven Types of Equity REITs.

Types of REITs

There are three main types of REITs: Equity REITs, Mortgage REITs, and Hybrid REITs. In this email, we’ll focus on the most common type—Equity REITs—and explore the different sectors within this category. You’ve heard of residential homes and apartments, but we explore little-known types including healthcare real estate and even data center REITs.

Seven Equity REIT Categories

Equity REITs own and operate income-producing real estate. Here’s a closer look at the various types:

1. Residential REITs: These REITs own and manage residential properties, including apartment buildings, single-family homes, and manufactured housing. They generate income primarily from leasing units to tenants. Example: Essex Property Trust (ESS)
2. Office REITs: These REITs invest in office buildings. They earn rental income from leasing space to businesses, ranging from small companies to large corporations. The performance of office REITs often correlates with the health of the business sector. Example: Equity Commonwealth (EQC) 
3. Healthcare REITs: Healthcare REITs invest in properties such as hospitals, nursing facilities, retirement homes, and medical office buildings. The aging population and their increasing healthcare needs make this a potentially lucrative sector. Example: Welltower, Inc. (WELL) 
4. Hospitality REITs: These REITs own hotels and resorts. Their income is generated from the daily rental of rooms to guests. The performance of hospitality REITs is closely tied to the travel and tourism industry. Example: Ryman Hospitality Properties (RHP) 
5. Data Center REITs: These REITs invest in properties that store and manage data, such as data centers and colocation facilities. With the growth of cloud computing, digital storage, and AI-powered technology, this sector has seen significant expansion. Example: Equinix Inc. (EQIX) 
6. Retail REITs: These REITs invest in shopping centers, malls, and other retail properties. They earn income from leasing space to retailers. The rise of e-commerce has impacted this sector, making location and tenant quality crucial. Example: Simon Property Group (SPG) 
7. Industrial REITs: These REITs own and manage industrial facilities, including warehouses, distribution centers, and self-storage facilities. With the surge in e-commerce, the demand for efficient logistics and storage solutions has boosted this sector’s growth. Example: Prologis (PLD) 

Why Diversify Across Different Types of Equity REITs?

Each type of equity REIT offers unique opportunities and risks. Diversifying your investments across different sectors can help mitigate risks and take advantage of growth opportunities in various parts of the real estate market. In our members-only mastermind video, see how various types of REIT investments might fit into a long-term portfolio strategy.

In the next article, we’ll explore the key metrics you can use to evaluate REIT performance, helping you make informed investment decisions.

Explore the other articles in this series below:

Part 1: Understanding the Basics