3 REIT ETFs for Robust Income Growth in 2025

For liquid, low-cost exposure to the real estate market and attractive dividend income, consider REIT ETFs. These funds allow you to own a diverse portfolio of properties, spanning residential, data center, and other sectors, with the ease of buying a single share. Should you need your funds, selling is usually a quick process. 

Real estate stands out as an investment due to its low correlation with traditional assets like stocks and bonds. This independence in price movements provides a significant diversification benefit.

1. Vanguard Real Estate ETF (VNQ): Plenty of diversification, low expenses

The ETF is up just a little more than 2% this year but more than 13% over the past five years. The fund’s goal is to match the performance of the MSCI US Investable Market Real Estate 25/50 Index. It has 158 REITs, which gives it a good amount of diversification and its expense ratio is only 0.13%. 

The ETF’s greatest sector exposure is to retail REITs (13.20%) and to healthcare REITS (13%). It has a quarterly dividend that currently yields around 4%. The lack of any interest cuts this year by the Fed, which seems increasingly likely, works as a drag against all REITs.

The ETF, because of its popularity and solid long-term performance,  is trading, as of June 16, at a slight premium to its Net Asset Value (NAV). The fund is on solid ground, and of course, will be even healthier if the US trims interest rates.

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2. Real Estate Select Sector SPDR Fund (XLRE): Seeking major REITs, low expenses

The fund’s shares are up more than 4% this year and more than 19% over the past five years. It has 31 holdings, including real estate management and development companies and REITs. It has a low expense ratio of 0.08% and tracks the Real Estate Select Sector Index. It focuses primarily on S&P 500-listed REITs involved with telecommunications, healthcare, data centers, and residential apartments.

Its top holdings include logistics REIT ProLogis (NYSE: PLD) at 9.26%, cell tower REIT American Tower A (NYSE: AMT) at 9.32%, healthcare REIT Welltower (NYSE: WELL) 8.62% and data center REIT Equinix (NASDAQ: EQIX) 8.06% 

Its quarterly dividend yields about 3.31%, but that comes with a high dividend payout ratio of 118.9%, so it may not be sustainable. 

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3. iShares U.S. Real Estate ETF (IYR): Good long-term performance

The Fund seeks to track the results of the Dow Jones U.S. Real Estate Capped Index, using a representative sampling strategy, which involves investing in a representative sample of securities that together has an investment profile similar to that of an applicable underlying index.

It has 65 holdings, led by American Tower REIT (7.55%) and Prologis REIT at (7.48%). It shows a strong balance concerning sectors, with healthcare REITs, industrial REITS, telecom tower REITs and retail REITs all representing slightly more than 10% of the fund’s holdings.

The fund is up more than 2.5% so far this year and more than 18% over the past five years.  It has an expense ratio of 0.39%, which is relatively high for an index-based passively managed ETF. BlackRock Fund Advisors manages IYR, but they do so by tracking the index, not by actively managing the portfolio to outperform the market.  

The fund has been around for 25 years and the dividend yield is 2.5%. Since its inception, it has had a total return of 8.5%.

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Year-to-date performance of the best REIT ETFs for 2025

Compare our 10 top picks, their year-to-date performance and total assets in an easy-to-view format.

Ticker	ETF	YTD	Assets
VNQ	Vanguard Real Estate ETF	+3.55%	$33.410B
XLRE	Real Estate Sector SPDR Fund	+4.89%	$7.404B
IYR	iShares US Real Estate ETF	+4.29%	$3.480B

Data as of June 25, 2025.

Pros and cons of REIT ETFs

Investing in REIT ETFs (Real Estate Investment Trust Exchange Traded Funds) offers a way to gain exposure to the real estate market without directly owning and managing physical properties. Here’s a breakdown of the pros and cons:

Pros of investing in REIT ETFs:

• Diversification: REIT ETFs invest in a basket of different REITs, which often hold various types of properties (e.g., residential, commercial, industrial, healthcare, data centers, etc.) and locations. This provides instant diversification within the real estate sector, reducing the risk associated with investing in a single property or individual REIT.
• Liquidity: Unlike direct property ownership, REIT ETFs are traded on major stock exchanges, making them highly liquid. You can buy and sell shares throughout the trading day, similar to regular stocks, offering flexibility and easy access to your investment.
• Income generation (high dividends): REITs are legally required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends. This makes REIT ETFs attractive for investors seeking regular passive income.
• Accessibility and lower entry barrier: Investing in physical real estate can be capital-intensive. REIT ETFs offer a much lower entry point, allowing individuals to invest in real estate with relatively small amounts of capital.
• Inflation hedge: Real estate, and by extension REITs, can act as a hedge against inflation. Property values and rental income often tend to rise with inflation, helping to preserve purchasing power.
• Potential for total returns: REIT ETFs offer the potential for both dividend income and capital appreciation as the underlying property values and rental income grow.

Cons of investing in REIT ETFs:

• Interest rate sensitivity: Real estate investments are highly sensitive to interest rate fluctuations. Rising interest rates can increase borrowing costs for REITs, impacting their profitability and potentially making their dividends less attractive compared to other income-generating investments like bonds.
• Market volatility: While offering diversification within real estate, REIT ETFs are still traded on stock exchanges and are subject to overall stock market volatility. Their share prices can fluctuate daily based on broader market sentiment and economic conditions.
• Tax implications of dividends: While REIT dividends are a major draw, they are typically taxed as ordinary income, which can be at a higher rate than qualified dividends from other types of stocks or long-term capital gains.
• Exposure to real estate market fluctuations: Despite diversification, REIT ETFs are still tied to the overall real estate market. Downturns in property values, declining occupancy rates, or specific challenges within certain property sectors (e.g., retail or office spaces) can negatively impact performance.
• Fees and expense ratios: Like all ETFs, REIT ETFs charge expense ratios, which are annual fees to cover the fund’s operating costs. These fees can eat into your returns over time.
• Concentration risk (for some ETFs): Some REIT ETFs can be “top-heavy,” meaning a small number of large REITs dominate their portfolio holdings. This means their performance can be heavily influenced by the performance of those few large companies.

How to invest in REIT ETFs

Finding and analyzing REIT ETFs effectively involves a combination of using reliable financial data, understanding key metrics specific to real estate, and considering your own investment goals. Here's a breakdown of the best ways:

1. Utilize ETF screeners and databases:

ETF.com, ETF Database, Morningstar, Yahoo Finance, Google Finance, Bloomberg all offer ETF screeners where you can filter by:

• Asset class: Select "Real Estate."
• Expense ratio: Look for low expense ratios (generally below 0.30% for passive funds is good). Lower fees mean more of your returns stay in your pocket.
• Assets under management (AUM): Larger AUM generally indicates more liquidity and institutional interest.
• Inception date: A longer track record can be helpful, though newer funds can also be good.
• Issuer: Consider reputable ETF providers such as Vanguard, iShares (BlackRock), Schwab, SPDR (State Street), etc.
• Dividend yield: While important for REITs, don't make it your sole criteria. A very high yield could indicate a struggling underlying REIT.
• Performance: Compare historical returns (1-year, 3-year, 5-year, 10-year). Remember past performance doesn't guarantee future results.
• Holdings: Look at the top holdings to understand which specific REITs the ETF is investing in. Some ETFs are highly concentrated in a few large REITs.

2. Understand key REIT metrics (and how they apply to ETFs):

Take a look at the most prominent holdings in a REIT ETF, or if available, the average of these holdings. Traditional stock metrics like P/E ratios aren't always ideal for REITs due to depreciation accounting. Instead, focus on funds from operations (FFO) and adjusted funds from operations (AFFO).

FFO is net income, plus depreciation and amortization, minus gains/losses from property sales. It's a better measure of a REIT's operating cash flow. AFFO takes FFO and subtracts recurring capital expenditures (like maintenance, tenant improvements). This gives an even clearer picture of cash available for distribution.

You'll typically see the ETF's holdings broken down, and you'll want to assess the quality of the underlying REITs based on their FFO/AFFO. Some ETF providers may even report a weighted average FFO/AFFO for the ETF.

Examine its net asset value (NAV)

This represents the fair market value of a REIT's assets minus its liabilities. For an ETF, it's the sum of the NAV of its underlying REIT holdings. Comparing an ETF's market price to its NAV can indicate if it's trading at a premium or discount. Also, look for REIT ETFs with high occupancy rates and lease terms, as they indicate stable revenue streams.

REIT ETFs can focus on specific sectors, such as industrial, residential, retail, healthcare, data centers), so if you look to invest in a sector-specific ETF, make sure you understand the economic cycle for that sector. It also makes sense to understand the geographic diversification of a REIT ETF. Are its REITs located in one region or are they spread globally?

Consider the dividend yield

It is crucial for income-focused investors. It's wise to compare the yield of a prospective REIT ETF against others in the sector and the broader market. Beyond just the yield, assess the dividend coverage ratio of the underlying REITs within the ETF.

This ratio indicates whether a REIT's funds from operations (FFO) or adjusted funds from operations (AFFO) are sufficient to sustain its dividend payments; a ratio above 80% generally suggests healthy, sustainable dividends.

Also, look for REITs and, by extension, REIT ETFs that have a history of consistently increasing their dividends over time.

Debt levels of the underlying REITs

Since REITs often use debt to finance properties, understanding their gearing ratio or debt-to-EBITDA can highlight potential risks.

A high debt load can be particularly problematic in a rising interest rate environment, as borrowing costs increase. For equity REITs, high occupancy rates and long, stable lease terms are strong indicators of reliable income streams. Additionally, pay attention to the property sector exposure of the REIT ETF; some focus on specific sectors like residential, industrial, retail, healthcare, or data centers.

Different sectors tend to perform differently across various economic cycles. Geographic diversification is also key to consider: determine if the properties are concentrated in one region or spread globally, as broader diversification can mitigate regional risks.

Beyond the underlying REITs, it's essential to analyze the ETF's own structure and strategy. Some investors may be fond of using robo-advisors for their portfolios.

REIT ETFs exposure

Finally, decide if you prefer exposure solely to U.S. REITs or if diversifying globally aligns better with your investment goals, as global REIT ETFs can present different growth opportunities and diversification benefits.

Macroeconomic factors significantly influence REIT ETF performance. Interest rates, for instance, have a notable impact because REITs are sensitive to their fluctuations; rising rates can increase borrowing costs for REITs and make fixed-income investments like bonds more attractive, potentially dampening REIT returns.

Demographic shifts and population trends also play a role, influencing demand for specific property types. See our top UK REITs for example.

3. Research REIT ETFs

To find and analyze REIT ETFs, several reputable research platforms are invaluable. Morningstar offers in-depth fund analysis, including analyst ratings, expense ratios, detailed portfolio breakdowns, and performance data. ETF.com and ETF Database provide comprehensive data, news, and powerful screening tools specifically for ETFs. 

Most major brokerage platforms, such as Fidelity, Schwab, E*TRADE, and Vanguard, offer their own robust research tools, screeners, and direct access to fund prospectuses. For industry-specific insights, Nareit, the National Association of Real Estate Investment Trusts, serves as the official voice of the REIT industry, offering valuable data, research, and lists of REITs on its website.

Lastly, visiting the websites of the ETF providers themselves, such as Vanguard or iShares, can provide detailed information on specific ETFs, including their holdings, prospectuses, and fact sheets.

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References

Vanguard Real Estate ETF portfolio

iShares Select US REIT ETF prospectus

iShares US Real Estate ETF holdings

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