Owning rental property requires a down payment (typically 20–25% for investment property), a mortgage, and the willingness to be a landlord. That’s a high barrier. But real estate as an asset class — income-producing property — is accessible in much smaller increments through several other vehicles.
Here’s how each option works, what you actually own, and what the realistic returns look like.
Option 1: REITs (Real Estate Investment Trusts)
A REIT is a company that owns income-producing real estate — apartment buildings, office towers, shopping centers, data centers, hospitals, warehouses. By law, REITs must distribute at least 90% of taxable income as dividends to shareholders. In exchange, they pay no corporate income tax.
You can buy REITs through any brokerage account, the same way you buy stocks. Minimum investment: the price of one share, often $10–$100. Or buy a REIT ETF for even broader exposure.
Types of REITs:
- Equity REITs: Own and operate properties. The most common type. Income comes from rents.
- Mortgage REITs (mREITs): Own mortgages and mortgage-backed securities rather than properties. Income comes from interest. More sensitive to interest rate changes. Higher risk.
- Hybrid REITs: Mix of both.
Large REIT ETFs to know:
- VNQ (Vanguard Real Estate ETF): Tracks the MSCI US Investable Market Real Estate 25/50 Index. Expense ratio 0.12%. The standard broad US REIT exposure.
- SCHH (Schwab US REIT ETF): Similar to VNQ, expense ratio 0.07%.
- VNQI (Vanguard Global ex-US Real Estate ETF): International real estate exposure.
What you get: Diversified exposure to dozens or hundreds of properties, professional management, liquidity (you can sell any day the market is open), and regular dividend income (typically paid quarterly).
What you don’t get: The leverage benefits of direct ownership, tax deductions from depreciation, and control over the assets.
Historical returns: US REITs (as measured by the FTSE NAREIT All Equity REITs index) have returned approximately 9–11% annually over long periods — comparable to or slightly above the S&P 500, with higher dividend income and different volatility characteristics.
Tax note: REIT dividends are mostly ordinary income (not qualified dividends), so they’re taxed at your marginal rate in a taxable account. Hold REITs in a Roth IRA or 401(k) when possible to shelter the income.
Option 2: Real estate crowdfunding platforms
Crowdfunding platforms pool money from many investors to fund specific real estate projects — apartment developments, commercial buildings, fix-and-flip loans. You invest in a specific deal or a diversified fund, earn returns from rent or interest, and exit when the project is complete or through secondary market sales.
Well-known platforms:
- Fundrise: The most accessible. Minimum $10 for their starter portfolio. Offers diversified eREITs across residential and commercial properties. Non-accredited investors eligible.
- RealtyMogul: Minimum $5,000. Both public non-traded REITs and individual deals. Non-accredited and accredited investors.
- CrowdStreet: Minimum $25,000. Commercial real estate deals. Accredited investors only.
- Arrived: Minimum $100. Single-family rental homes and vacation rentals. Non-accredited investors.
What you get: Access to deal types not available through public REITs, sometimes higher yields (8–12% target returns), and the ability to invest in specific markets or property types.
What you don’t get: Liquidity. These investments are typically locked up for 3–7 years. Secondary markets exist on some platforms but are limited. This is illiquid capital.
Risk: Individual deals can fail. Platforms themselves can have issues. Due diligence matters. Fundrise and RealtyMogul have track records; newer platforms carry platform risk. Start with platforms that have years of history.
Who this is for: Investors who want real estate exposure beyond what REITs offer, are comfortable with illiquidity, and have money they won’t need for several years.
Option 3: Publicly traded real estate companies (non-REIT)
Some major real estate companies are publicly traded but don’t qualify or choose not to operate as REITs. Examples: Zillow (tech/real estate hybrid), CBRE (commercial real estate services), Howard Hughes (master-planned communities). These are equity investments in real estate businesses, not direct property ownership.
Returns depend on the company’s performance, not just property values. More stock-like volatility, less dividend income than REITs.
Option 4: Buying into a real estate limited partnership (LP)
Traditionally for accredited investors only ($1M net worth or $200k+ income). Some crowdfunding platforms have democratized this. You’re a limited partner — you share in profits but have no management role or liability. Typically illiquid for 5–10 years.
This is a niche option for sophisticated investors who qualify and want specific deal exposure. Not a starting point.
Option 5: House hacking (lowest barrier to direct ownership)
If you want to own actual property without full landlord overhead, house hacking means buying a multi-unit property (duplex, triplex), living in one unit, and renting the others. Rental income offsets your mortgage. You can often qualify for an owner-occupied loan (3.5% FHA down payment) rather than an investor loan (20–25% down).
This requires capital (even 3.5% of a $400,000 property is $14,000), willingness to live near your tenants, and landlord responsibilities. But it’s the most direct path to real estate ownership at low entry cost.
How real estate fits in a portfolio
Real estate (through REITs) provides:
- Diversification: Low correlation to stocks in some periods
- Inflation protection: Rents and property values tend to rise with inflation
- Income: REITs pay regular dividends, useful in retirement
- Portfolio volatility: REITs have their own volatility cycle, not always aligned with stock market
A typical allocation might be 5–15% of equities in real estate exposure. The three-fund portfolio doesn’t include a dedicated real estate allocation (since REITs are already in total market index funds), but some investors carve out a separate REIT tilt.
FAQ
Are REITs a good investment in 2026?
REITs underperformed significantly in 2022–2023 as interest rates rose sharply (real estate is interest-rate sensitive). With rates stabilizing or declining, real estate has been recovering. Valuations are more attractive than they were at 2021 peaks. Long-term: REITs remain a valid diversifier.
Can I invest in REITs in my Roth IRA?
Yes, and it’s often the best place to hold them. REIT dividends are ordinary income — inside a Roth IRA, they grow and can be withdrawn tax-free.
What’s the difference between a publicly traded REIT and a non-traded REIT?
Publicly traded REITs trade on stock exchanges (NYSE, Nasdaq) — you can buy and sell any trading day. Non-traded REITs are sold through broker-dealers, are illiquid, and often have high fees. Stick to publicly traded REITs unless you have a specific reason for the non-traded structure.
Is Fundrise worth it?
Fundrise has delivered approximately 5–8% annualized returns depending on the period. Better than a savings account, lower than public REITs in good years, but with lower volatility (because they’re not publicly marked-to-market daily). Useful for a specific slice of a portfolio if you accept the illiquidity. Not a replacement for public REITs.