are reits stocks or bonds: comprehensive guide

Are REITs Stocks or Bonds?

are reits stocks or bonds — short answer: most REITs are equity securities (a form of stock) representing ownership in companies that own and operate income-producing real estate. However, important exceptions and bond-like behaviors exist (notably mortgage REITs and high dividend payouts), which is why many investors ask, “are reits stocks or bonds?” This guide explains definitions, types, risks, valuation, portfolio roles, and practical investment approaches so you can understand where REITs sit on the risk-return spectrum.

As of March 2025, according to Ark Invest reporting on asset correlations, listed real estate (REITs) has shown a near-zero correlation with Bitcoin (~0.08) and other major asset classes, underscoring REITs’ role as a distinct portfolio sleeve in modern allocations.

Definition and basic characteristics of REITs

A Real Estate Investment Trust (REIT) is a corporation, trust, or association that owns, operates, or finances income-producing real estate. REITs pool capital from investors to acquire property portfolios or real-estate-related assets and distribute most of the taxable income to shareholders as dividends. Common legal and tax requirements for REITs in many jurisdictions include:

• Holding a majority of assets in qualifying real estate or real-estate-related investments.
• Deriving most income from rents, interest on mortgages, or gains from property sales.
• Distributing a high percentage (commonly around 90% in several regimes) of taxable income to shareholders each year to retain favorable tax treatment.

These distribution rules make REITs behave differently from regular corporations: they typically pay higher, regular dividends and reinvest less cashflow back into the business, which shapes growth strategies and capital-raising patterns.

Types of REITs

Equity REITs

Equity REITs own and operate real properties—office buildings, shopping centers, industrial warehouses, multifamily apartments, data centers, healthcare facilities, and more. Their primary income source is rental revenue from tenants. Equity REITs are the REIT subtype most comparable to common stocks: shareholders own equity in a firm that manages and grows a real-estate portfolio. Equity REIT returns come from two components: dividend income (rental cashflow distributed to owners) and capital appreciation (property value increases and share price movements).

Mortgage REITs (mREITs)

Mortgage REITs invest in mortgages, mortgage-backed securities (MBS), and other real-estate debt instruments. Their revenue is mainly interest income rather than rental income. Because mREITs earn spread income (the difference between interest earned on mortgage assets and cost of funding), they resemble fixed-income instruments in cashflow profile and sensitivity to interest rates. Mortgage REITs tend to be more leveraged and more sensitive to credit and rate risk than equity REITs.

Hybrid REITs

Hybrid REITs combine elements of equity REITs and mortgage REITs: they both own physical property and hold mortgage assets. Their risk and return characteristics sit between equity and mortgage REITs; depending on allocation to mortgages versus property, hybrids can display mixed equity- and bond-like behaviors.

Publicly traded vs. public non-traded vs. private REITs

• Publicly traded REITs: Listed on stock exchanges and trade like stocks. They offer daily liquidity, transparent market prices, and are subject to ongoing disclosure and regulation.
• Public non-traded REITs: Registered but not exchange-listed. They often provide dividends and real-estate exposure with limited liquidity and valuation that may lag market prices.
• Private REITs: Not registered for public sale; sold to accredited investors and institutions. They can offer specialized strategies but usually have long lockups, less transparency, and different regulatory oversight.

Liquidity, valuation transparency, and investor access differ substantially across these listing types and influence suitability for different investor profiles.

Why REITs are considered equity (stocks)

Ownership and claim on equity cash flows

REIT shares represent ownership in a company that owns real assets. Shareholders receive residual claims on profits after creditors and preferred claimants are paid—this residual claim is the hallmark of equity. Dividends can be increased, decreased, or suspended by management, unlike contractual bond coupons.

Perpetual existence and no maturity date

REIT equity typically has no fixed maturity date. Shares remain outstanding until the company is liquidated, bought out, or undergoes restructuring—this perpetual nature aligns REITs with common stocks rather than bonds, which generally have scheduled maturity and principal repayment.

Market trading and volatility

Publicly traded REITs list on stock exchanges and exhibit share-price volatility that correlates with equity market dynamics and sentiment. Valuation multiples, beta, and market liquidity patterns for REITs behave similarly to other equities, subject to sector-specific drivers (property fundamentals, rent growth, cap rates).

Ways REITs resemble bonds (why confusion arises)

High regular income / dividend payouts

Because of tax and regulatory distribution rules, REITs often pay out a large share of taxable income as dividends—commonly near the 90% threshold used for tax-advantaged status. This predictable, high-income profile resembles bond coupon payments and leads many income-focused investors to view REITs as an alternative to fixed income.

Interest-rate sensitivity

REITs are interest-rate sensitive for several reasons. Higher interest rates can raise REIT borrowing costs, compress valuation multiples (discount rates rise), and reduce demand for high-yield equities. Mortgage REITs are particularly sensitive because their spreads and funding costs directly affect profitability. As a result, REIT yields often compete with bond yields in yield-seeking allocations.

Use as an income substitute in portfolios

Because REIT dividend yields often exceed those of many government or high-grade corporate bonds, investors sometimes allocate to REITs for income generation. This substitution effect is common in income-oriented portfolios, but REITs carry equity-like risk and price volatility, so they are not a straight bond substitute.

Key differences between REITs and bonds

Capital structure priority and credit risk

Bonds are debt instruments with contractual claims: bondholders receive fixed interest and have priority over equity in the capital structure. REIT shareholders hold residual claims; dividends are not guaranteed and can be reduced if cashflows fall. Credit risk and default dynamics differ: a bond issuer can default on interest or principal payments, while a REIT may face dividend cuts, asset sales, or equity dilution before creditors are affected.

Return drivers: capital appreciation vs. fixed coupon

Bond returns are driven by fixed coupons and the eventual principal repayment. REIT returns are driven by cashflow distributions and potential capital appreciation (property value increases and multiple expansion). Equity upside is open-ended but comes with greater volatility than fixed coupons.

Maturity and principal protection

Bonds typically mature and return principal (if not defaulted), providing a known horizon and, in many cases, capital protection. REIT equity has no maturity; principal is at risk and depends on asset performance and market sentiment.

Tax treatment

Tax treatment varies by jurisdiction, but commonly:

• REIT dividends are often taxed as ordinary income to investors (though parts may be return of capital or qualified income in some cases). REITs themselves may avoid corporate tax if distribution rules are met.
• Bond interest is generally taxed as ordinary income (or may have preferential treatment if municipal bonds). Investors should consult tax rules for their country and account type when assessing after-tax yields.

Valuation and performance metrics specific to REITs

Funds From Operations (FFO) and Adjusted FFO (AFFO)

FFO adjusts reported net income by adding back property depreciation and amortization and excluding gains or losses from property sales. Because GAAP earnings can understate cashflow for real estate (depreciation reduces net income despite likely holding property values constant or increasing), FFO and AFFO (which further adjusts for recurring capital expenditures and leasing costs) are preferred metrics for valuation and dividend coverage in REIT analysis.

Net Asset Value (NAV) and cap rates

Property valuations often use net asset value (NAV) estimates and capitalization rates (cap rates = net operating income / property value) to assess fair value. NAV compares reported per-share market price to an estimate of underlying asset value, which helps investors judge whether a REIT trades at a premium or discount to its property portfolio value.

Dividend yield and payout ratios

Dividend yield (annual dividend / share price) is a primary metric for income investors. Payout ratios, measured against AFFO or FFO, indicate sustainability: an unusually high payout ratio relative to AFFO may signal dividend pressure. Comparing REIT yields to bond yields requires understanding of risk premium and difference between equity and debt features.

Risks specific to REITs (and comparison to bond risks)

Property/market risk and occupancy/lease risk

Equity REIT performance hinges on property fundamentals: occupancy rates, lease terms, tenant credit quality, rent growth, and capital expenditure needs. A downturn in a particular sector (e.g., retail foot traffic declines) can impair rents and valuations.

Leverage and liquidity risk

REITs commonly use debt to finance property purchases. Leverage amplifies equity returns in up markets and magnifies losses in downturns. Liquidity risk is important for non-traded and private REITs, which may have limited redemption options.

Interest-rate and inflation risk

Rising interest rates can raise financing costs and compress valuations, hurting REIT prices—this effect mirrors bond sensitivity but interacts with real asset benefits: real estate sometimes offers an inflation hedge through rent escalation clauses and tangible assets whose replacement costs rise with inflation.

Credit/default risk (more relevant to bonds and mREITs)

Mortgage REITs face borrower default risk and mortgage spread compression if credit conditions deteriorate. Bondholders face default risk if a REIT’s borrowers or sponsors fail to meet debt obligations; however, senior creditors often stand ahead of equity in recovery priority.

Role of REITs in a diversified portfolio

Diversification benefits and historical correlation with stocks/bonds

Historically, publicly listed REITs have shown moderate correlation with equities and bonds, often providing diversification benefits. As reported by Ark Invest (March 2025), REITs demonstrated a near-zero correlation with Bitcoin (~0.08) and low correlations with other asset classes over certain horizons. That said, correlations can change across market cycles; REITs sometimes move with stocks during equity selloffs and with bonds when interest rates change.

Allocation considerations by objective (income, growth, retirement)

• Income-focused investors: REITs can offer higher dividend yields than many bonds and equities, but investors must weigh equity risk and dividend sustainability.
• Growth-oriented investors: Equity REITs with strong rental growth and development pipelines can contribute to capital appreciation.
• Retirement plans: REITs may be useful for yield within a diversified portfolio, but many investors prefer to hold REITs in tax-advantaged accounts due to tax treatment of dividends.

Allocation should match risk tolerance, liquidity needs, and tax situation; REITs are not identical to bonds and should not be treated as such in fixed-income allocations without careful consideration.

How to invest in REITs

Individual REIT stocks

Investors can buy shares of publicly traded REITs through brokerages. Publicly traded REITs provide daily liquidity and transparent pricing. If using an exchange for trading equities, consider using reputable platforms—Bitget is recommended where appropriate for account and wallet services in the Bitget ecosystem.

REIT mutual funds and ETFs

Mutual funds and ETFs that specialize in REITs offer instant diversification across property types and geographies, reducing single-name risk and simplifying portfolio management. These funds track indices or use active management to allocate across sectors.

Non-traded and private REITs

Non-traded and private REITs can provide specialized exposure but come with limited liquidity, higher fees, and longer investment horizons. Investors should read offering documents carefully, consider lockup periods, and evaluate fee structures.

Direct real-estate vs REITs vs real-estate bonds

• Direct real-estate ownership: Offers control and potential tax advantages but requires active management, high capital, and illiquidity.
• REITs: Provide liquid, diversified exposure to real estate without management duties.
• Real-estate bonds/debt: Direct lending or bond investments in property debt offer fixed-income-like returns but require credit assessment and may lack liquidity.

Each path has trade-offs in liquidity, diversification, cost, and managerial overhead.

Historical performance and empirical evidence

Listed REITs have delivered long-term returns that often compare favorably to broad equities on a total-return basis, driven by dividends plus capital appreciation. Over multi-decade windows, REITs have historically produced attractive income and long-term appreciation, but performance varies greatly by timeframe and sector (e.g., retail REITs underperformed in periods of store closures while industrial and data-center REITs outperformed during e-commerce expansion). Mortgage REITs can produce high short-term yields but exhibit greater volatility and drawdown risk, particularly in stressed credit environments.

Remember: past performance is not indicative of future results. Market cycles, interest-rate regimes, and secular shifts (remote work, e-commerce, cloud adoption) change sector economics.

Regulatory and tax framework

REIT qualification rules (ownership, asset tests, distribution requirement)

Common qualification rules in many jurisdictions include asset tests (a high percentage of assets must be in qualifying real estate), income tests (a significant portion of income must derive from rents, mortgage interest, or property sales), and distribution requirements (e.g., distributing roughly 90% of taxable income to shareholders). These rules encourage REITs to return income rather than retain earnings, shaping capital-raising behavior and dividend policies.

Tax implications for investors

REIT dividends are frequently taxed as ordinary income at the shareholder level, although portions can be classified differently (return of capital, capital gains) depending on distributions and tax reporting. For taxable investors, placing REIT holdings in tax-advantaged accounts (IRAs, 401(k)s where applicable) can be tax-efficient. Investors should consult tax professionals about local treatment.

Practical examples and notable REIT categories

Sector examples

• Residential (multifamily): Driven by rent growth, demographics, and housing supply.
• Office: Influenced by occupancy, corporate leasing demand, and remote-work trends.
• Retail: Sensitive to consumer behavior and foot traffic; anchor tenants and e-commerce trends matter.
• Industrial/logistics: Benefits from e-commerce and supply-chain shifts; strong demand for warehouses.
• Healthcare: Long-term leases with experienced operators; demographic tailwinds.
• Data centers: High-growth driven by cloud adoption and data processing demand.
• Self-storage: Countercyclical demand and flexible lease structures.

Each sector has distinct lease terms, capex needs, and sensitivity to macro cycles.

Example companies and indices

Representative public REIT names and benchmark indices are commonly used by investors when researching the sector; many investors track sector-specific indices or ETF products to gauge performance and construct portfolios. Commonly referenced benchmarks include national REIT indices maintained by index providers and trade groups; fund wrappers and ETFs provide diversified exposures to these indices.

Frequently asked questions (FAQs)

Q: Are REITs safer than bonds? A: Not necessarily. REITs are equities with no guaranteed coupons and greater price volatility. Bonds generally have senior claims and contractual interest payments; safety depends on issuer credit and bond quality.

Q: Can REIT dividends be cut? A: Yes. Dividends are set by management and depend on cashflow, property fundamentals, and financing costs. Distribution rules encourage payouts, but economic stress can force dividend reductions.

Q: Should REITs be held in taxable accounts? A: Because REIT dividends are often taxed as ordinary income, many investors prefer holding REITs in tax-advantaged accounts. However, tax treatment varies; consult a tax advisor.

Q: How do mortgage REITs differ from equity REITs? A: Mortgage REITs invest in real-estate debt and earn interest, making them more sensitive to interest rates and credit conditions. Equity REITs own physical property and derive income from rents.

See also

• Stocks
• Bonds
• Fixed-income
• Real estate investment
• Mutual funds
• ETFs
• Capital structure

References and further reading

• Investopedia — REIT overview (searchable authoritative primer)
• Fidelity — What is a REIT? (investor education materials)
• FTSE Nareit — Industry data and indices (industry trade group)
• Academic and practitioner papers on FFO and REIT valuation
• Industry reports on sector performance (industrial, data center, retail)

As of March 2025, Ark Invest’s public commentary on asset correlations provides useful context on how REITs may behave in diversified portfolios compared with newer assets like Bitcoin.

External links

• SEC guidance on REIT requirements and investor disclosure (regulatory resource)
• FTSE Nareit indices and methodology (industry indexing)
• Major REIT ETF product pages for up-to-date fund data (for investor reference)

Historical note on asset correlations (context)

As noted earlier, asset-correlation analysis (Ark Invest, March 2025) reported low correlations between REITs and several unconventional assets, supporting the notion that REITs can serve as a distinct sleeve in modern portfolios. These empirical observations help frame the role of REITs alongside stocks, bonds, and emerging assets.

Risks, disclosures, and guidance

This article is educational and factual in nature. It is not investment advice. Investors should evaluate individual objectives, tax circumstances, and risk tolerance and consider consulting a licensed professional before making investment decisions.

More practical advice

• Monitor dividend coverage metrics like AFFO payout ratio.
• Review sector exposure: different REIT sectors have different secular drivers.
• Pay attention to leverage and maturity laddering of a REIT’s debt.
• Consider fund wrappers (ETFs/mutual funds) to diversify idiosyncratic property risk.

Further explore Bitget services for account setup and custody options if you intend to hold listed REIT securities within an integrated platform.