How do I Choose the Best REIT Mutual Funds?

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  • Written By: Florence J. Tipton
  • Edited By: John Allen
  • Last Modified Date: 25 August 2019
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Choosing real estate investment trusts (REITs), or REIT mutual funds, is usually based on a number of factors. These can include weighing your investment goals in terms of profit and current financial picture. Another consideration for choosing REIT mutual funds may include the diversity that the fund offers in terms of the types of properties. Because of the risks associated with most investment vehicles, you might also take into account the current condition of the real estate market and the past performance of REIT mutual funds.

The short-term and long-term investment goals that you have can be the catalyst for your decision to invest in real estate investment trusts. The amount of your household income and how much money you have set aside to invest may help in determining the best options. Traditional real estate investments usually require large sums of money from investors. With REIT mutual funds, you can invest small amounts of money over a period of time, have ownership in properties, and not incur a huge financial risk.

In essence, REIT mutual funds consist of a diverse property mix such as commercial, residential, and health care facilities. Some investors regard this as an advantage to investing in a REIT mutual fund. A diversified REIT mutual fund may still have profit potential. When one sector of the real estate market represented in the fund is underperforming with losses, another sector may experience gains.


A regular real estate investment trust may have only one type of real estate property for investing. For example, a real estate investment trust for office buildings may lose money if the economy is bad and businesses leasing the office space close. The diversification of REIT mutual funds has the potential to shield you from this loss if the residential and health care properties in the fund are thriving.

The condition of the real estate market has the potential to impact the performance of REIT mutual funds. A recession and high unemployment rate may cause some REIT mutual funds to fluctuate in value. The performance of commercial properties because businesses are not expanding might reduce the amount of profits.

Most people may select this type of investment based on the reputation that property investments have to produce guaranteed returns. Typically, you can review the mutual fund performance for up to the past five years or longer, if this information is available. Past performance is usually a good predictor of how well the REIT mutual fund may perform in the future. If performance shows that the fund earned a relatively steady profit, you might consider investing in it.


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