In 2024, it appeared that the U.S. economy had actually managed a soft landing in the aftermath of the COVID-19 pandemic, avoiding a recession. However, the new administration’s destabilizing trade policy has sent global stock exchanges into a tailspin.
Morningstar reports that the U.S.’s gross domestic product contracted by 0.3 percent in the first three months of the year, and many experts now predict that the U.S. will experience supply chain issues and inflation this year. Meanwhile, polls show that consumer sentiment remains historically low. For these reasons, the possibility of an economic downturn has come roaring back in 2025.
Uncertain times like these can be challenging for investors. According to investment expert Dutch Mendenhall, author of “Money Shackles: The Breakout Guide to Alternative Investing” and founder of multiple real estate companies, real estate assets, in general, and an investment vehicle called real estate investment trusts (REITs), in particular, can come to the rescue.
“A lot of people just ride out a downturn and hope for the best,” Mendenhall says. “However, smart investors take a more active approach, investing in alternative investments like income-producing real estate. REITs make it easy to diversify and protect yourself from the uncertainty in the stock market right now.”
Beyond Stocks: Why real estate investments make sense now
For Mendenhall, opportunity can always be uncovered and exploited, regardless of what the stock market might be doing. The trick is to create hedges with alternative investments, such as real estate properties.
“During times of inflation, cash flow should be your number one priority,” Mendenhall says. “You’ll want to buy real estate that can generate a steady stream of income. In particular, consider multi-family residential buildings, since these usually allow landlords to raise rents more often than single-family homes.”
To achieve this, he recommends having a clear schedule for rent increases and adhering to it. “Put these right into your calendar,” he advises. “Otherwise, a year can slip away without you even realizing it.”
Mendenhall also realizes that many investors don’t want to spend the time identifying real estate properties to buy, vetting them, and going through the hassle of making the deals happen, much less maintaining the properties afterwards and dealing with tenant relations. That’s why, for many people, investing in a REIT makes sense instead.
What’s a REIT? Like a mutual fund, but better
REITs make real estate investing easy. Like mutual funds, these assets are designed to enable ordinary Americans to invest in the real estate market without having to dedicate a ton of time, energy, and capital to mastering this domain themselves. Instead, experts in the real estate sector like Mendenhall do all the heavy lifting so ordinary people don’t have to.
“Previously, only high net-worth individuals and institutions could take advantage of real estate industry deals and get the dividends that come with them,” Mendenhall says. “When the government enabled REITs to be set up, investors of all kinds suddenly got access to this exciting new way to make money.”
Types of REITs: Equity REITs
There are three main kinds of REITs. The most common type is Equity REITs, which own and lease out income-producing real estate, such as apartments, office buildings, or other commercial properties.
“These REITS offer investors a slice of the profits that come from the company’s real estate portfolio,” Mendenhall explains. “Since these REITs are required by law to return 90 percent of their taxable income to their shareholders, this means dependable income for investors. Moreover, REITs generally produce higher dividends than what Wall Street produces.”
Moreover, the properties in these REITs’ portfolios often appreciate over time, either through renovations and improvements or due to the natural pressure of robust demand. “For publicly traded REITs, these increases in property assessments lead to a higher net asset value (NAV),” Mendenhall says. “The stock price surges accordingly.”
In addition to public REITs, there are also public non-traded REITs, which are registered with the SEC and must fulfill reporting requirements, as well as private REITs, which are not registered with the SEC and therefore involve a higher level of risk.
Mortgage REITs, hybrid REITs, and REIT mutual funds
The second major kind is mortgage REITs (mREITs). These companies don’t invest in physical real estate, but rather in the mortgages or mortgage-backed securities that finance real estate transactions. As the borrowers repay their loans, investors get returns from the interest. These REITs may dole out higher yields in general, but they are vulnerable to changes in interest rates and the possibility of defaults.
Hybrid REITs are the third major type. These REITs also offer investors income in the form of dividends, combining both equity and mortgage REITs to leverage each other’s strengths.
“These REIT investments operate and own rental properties, but they also distribute dividends from having a stake in mortgages,” Mendenhall says. “This diversification can offer protection against economic stressors like inflation.”
Investors who would like financial experts to pick the REITs for them should also consider REIT mutual funds, in which managers invest in a whole portfolio of curated REITs and pass part of the profits on to shareholders.
The advantages of REITs for investors
Few ordinary investors have hundreds of thousands of dollars, if not millions, in spare change to buy real estate. By joining a REIT, however, they can enjoy the steady ROI from real properties that REITs provide.
“Returns from REITs are a great way to assure steady passive income,” Mendenhall says. “That’s why they are attractive to most investors. For instance, REITs tend to be popular with retirees.”
According to Mendenhall, another advantage is that REITs operate like regular stocks, unlike real estate deals, which tend to involve protracted timelines and tie up capital for long periods. “With many REITs, you can liquidate your holdings in the proverbial blink of an eye,” Mendenhall says.
Invest in REITs, earn dividends
REITs provide a simple, easy way to profit from this exciting class of assets without having to invest in one’s own real estate sales, much less undertake all the work involved in property management. Thanks to REIT management, investors can get the rewards without the headaches. In addition, REITs typically outperform the stock market and provide shelter from inflation.
For these reasons and more, many investors would benefit from purchasing shares in REITs. Inflation-proof your finances today — consider getting into a REIT!