Last updated: July 2026
This article is for informational purposes only and is not investment advice. See our full Disclaimer for details.
Real estate investment trusts (REITs) let investors own a slice of commercial and residential property — apartment buildings, data centers, cell towers, warehouses, shopping centers — without buying a building directly. By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends, which is why REIT ETFs are almost always discussed as an income-oriented holding rather than a growth play. This guide compares five of the most widely held REIT ETFs and covers the interest-rate sensitivity and tax quirks that make this asset class behave differently from a typical dividend stock fund.
How We Evaluate REIT ETFs
For each fund, we reviewed the underlying index, expense ratio, number of holdings and property-sector diversification, and current yield, sourced from each issuer’s official fund page and public ETF data providers. We also noted how each fund handles mortgage REITs (companies that finance real estate rather than own it directly), since that distinction meaningfully affects a fund’s yield and volatility profile.
Quick Comparison Table
| ETF | Focus | Expense Ratio | Approx. Holdings | Approx. Yield |
|---|---|---|---|---|
| VNQ | Broadest U.S. REIT exposure | ~0.12%–0.13% | ~160 | ~3.5%–4.1% |
| SCHH | Lowest-cost broad U.S. equity REITs | 0.07% | ~120–127 | ~2.7%–3.0% |
| XLRE | Large-cap, S&P 500 REITs only | ~0.08%–0.13% | ~25–32 | ~3.1%–3.5% |
| REET | Global REIT diversification | 0.14% | Broad, international | ~3.2%–3.3% |
| IYR | Established, higher-cost alternative | 0.41% | Broad | Varies |
Figures are approximate and change regularly, particularly yield, which fluctuates with REIT share prices and interest rate conditions. Always confirm current figures on each issuer’s official fund page before investing.
1. Vanguard Real Estate ETF (VNQ) — Broadest Core Holding
Tracks: MSCI US Investable Market Real Estate 25/50 Index
VNQ is the largest and most widely held REIT ETF, spanning roughly 160 holdings across nearly every property type — residential, industrial, data centers, healthcare facilities, cell towers, and more. Top holdings have typically included names like Prologis, American Tower, Equinix, and Welltower, reflecting a diversified cross-section of the modern REIT market rather than a concentration in any single property type.
Worth knowing: VNQ’s inclusion of a broader range of REIT types, including some mortgage and specialty REITs, tends to give it a somewhat higher yield than more narrowly focused alternatives like SCHH — though that broader inclusion can also mean somewhat more variable distributions than a fund limited strictly to traditional equity REITs.
Best for: Investors wanting the single most diversified, broadest core REIT holding, functioning as a straightforward “own the whole real estate sector” fund.
2. Schwab U.S. REIT ETF (SCHH) — Lowest Cost
Tracks: Dow Jones Equity All REIT Capped Index
SCHH is generally the cheapest broad REIT ETF available, and it takes a more selective approach than VNQ by excluding mortgage and hybrid REITs entirely, focusing purely on equity REITs — companies that directly own and operate real estate rather than finance it.
Worth knowing: That exclusion of mortgage REITs is part of why SCHH’s yield tends to run lower than VNQ’s — mortgage REITs typically carry higher, but also more volatile, yields tied to interest rate spreads rather than property income. Some investors specifically prefer SCHH’s “purer” equity-REIT focus for that reason, even at the cost of a lower headline yield.
Best for: Cost-conscious investors who specifically want equity REIT exposure without the added volatility mortgage REITs can introduce.
3. Real Estate Select Sector SPDR Fund (XLRE) — Large-Cap, Blue-Chip Focus
Tracks: Real estate companies within the S&P 500
XLRE takes the narrowest approach on this list, holding only the real estate companies included in the S&P 500 — roughly 25-32 holdings, a fraction of VNQ’s or SCHH’s holdings count. That narrower universe means exposure limited to some of the largest, most established REITs in the country.
Worth knowing: Concentrating on S&P 500-qualifying REITs generally means leaning toward companies with stronger balance sheets and more stable cash flows than the broader REIT universe — a trade-off between diversification (which XLRE has less of) and company quality/stability (which XLRE’s narrower screen tends to favor).
Best for: Investors who prefer concentrated exposure to the largest, most established REITs rather than the broadest possible property-sector diversification.
4. iShares Global REIT ETF (REET) — International Diversification
Tracks: A global index of REITs across developed and some emerging markets
REET is the outlier on this list in scope: rather than U.S.-only exposure, it holds REITs from around the world, providing property-sector diversification outside the U.S. real estate market specifically.
Worth knowing: Just as VXUS diversifies equity exposure beyond the U.S. (covered in our VTI vs VXUS guide), REET applies that same logic specifically to real estate — a real estate downturn concentrated in the U.S. market doesn’t necessarily affect international property markets in the same way, and vice versa.
Best for: Investors who specifically want geographic diversification within their real estate allocation, rather than U.S.-only REIT exposure.
5. iShares U.S. Real Estate ETF (IYR) — An Established but Costlier Alternative
Tracks: Dow Jones U.S. Real Estate Index
IYR is one of the longest-running REIT ETFs, with strong liquidity and options market depth. Its expense ratio, however, is considerably higher than every other fund on this list — roughly 0.41%, more than three times VNQ’s fee and nearly six times SCHH’s.
Worth knowing: For a long-term holder, IYR’s fee disadvantage relative to VNQ or SCHH is difficult to justify without a specific reason to prefer its particular index construction or trading characteristics. It’s included here less as a top recommendation and more as an illustration of how much REIT ETF costs vary — worth checking before defaulting to a well-known, older ticker.
Best for: Investors specifically valuing IYR’s established liquidity and options market over the meaningfully lower fees available from VNQ, SCHH, or XLRE.
Why REITs Are So Sensitive to Interest Rates
This is the single most important dynamic to understand about this asset class, and it connects directly to the bond concepts covered in our Best Bond ETFs guide. REITs typically carry significant debt to finance property acquisition and development, so rising interest rates directly increase their borrowing costs. At the same time, rising rates make bonds and other income investments relatively more attractive compared to REIT dividend yields, which can pressure REIT share prices independent of how the underlying properties are actually performing.
This dynamic played out clearly during the 2022-2023 rate-hiking cycle, when REITs faced significant pressure, and it remains a live consideration: as of mid-2026, with the 10-year Treasury yield sitting in the mid-4% range and housing starts showing signs of softening, real estate ETFs continue to trade with meaningful sensitivity to interest rate expectations. When rates fall, the opposite dynamic tends to apply — lower financing costs and comparatively more attractive REIT yields relative to bonds have historically supported the sector.
An Important Tax Detail: REIT Dividends Are Usually Not Qualified
This is a theme we’ve returned to throughout this site’s dividend and tax-focused articles, and it applies directly here. Because REITs generally don’t pay corporate income tax as long as they distribute the majority of their income to shareholders, the dividends they pass along are typically not eligible for the lower qualified-dividend tax rate that applies to most standard stock dividends — instead, they’re usually taxed as ordinary income, at your regular marginal tax rate.
This is the same reasoning covered in our Best ETFs for a Roth IRA and Best ETFs for a Taxable Brokerage Account guides: REIT ETFs are frequently cited as good candidates for tax-advantaged accounts specifically because of this less favorable tax treatment in a taxable account. This is general tax information, not personalized advice — a tax professional can confirm how it applies to your specific situation.
Which REIT ETF Fits Your Situation?
Want the single broadest, most diversified core REIT holding: VNQ.
Want the lowest cost and prefer pure equity-REIT exposure without mortgage REITs: SCHH.
Want concentrated exposure to only the largest, most established REITs: XLRE.
Want geographic diversification beyond U.S. real estate specifically: REET.
Are holding REITs in a tax-advantaged account: Any of the above; the tax-inefficiency concern that favors an IRA over a taxable account applies fairly evenly across this category.
Frequently Asked Questions
Are REIT ETFs a good inflation hedge? REITs are sometimes discussed as a partial inflation hedge, since property values and rents can rise with inflation over time — but this relationship isn’t perfectly consistent, and REITs also carry meaningful interest-rate sensitivity that can work against them during certain inflationary periods (particularly when inflation triggers rate hikes). It’s a more nuanced relationship than a simple “REITs protect against inflation” framing suggests.
Why is SCHH’s yield lower than VNQ’s if they’re both REIT funds? SCHH excludes mortgage and hybrid REITs, which tend to carry higher (and more volatile) yields than traditional equity REITs. VNQ’s broader inclusion of these REIT types is part of why its yield typically runs higher.
Should I hold REIT ETFs in a Roth IRA? Many investors specifically do, given REIT dividends’ typically non-qualified, ordinary-income tax treatment, which is sheltered from annual taxation inside a Roth IRA. This is general information, not a personalized recommendation — see our Best ETFs for a Roth IRA guide for more on this concept.
How do rising interest rates affect REIT ETFs? Rising rates generally pressure REITs in two ways: increasing their borrowing costs (since REITs typically carry meaningful debt) and making bonds and other income investments relatively more attractive compared to REIT dividend yields. This combination has historically weighed on REIT share prices during rate-hiking periods.
What’s the difference between an equity REIT and a mortgage REIT? Equity REITs directly own and operate physical real estate, earning income primarily from rent. Mortgage REITs instead finance real estate by holding mortgages or mortgage-backed securities, earning income from interest rate spreads — a structurally different, generally more interest-rate-sensitive business model that tends to produce higher but more volatile yields.
How much of my portfolio should be in REIT ETFs? There’s no universal answer — it depends on your income needs, risk tolerance, and how much real estate exposure you already have through other means (such as homeownership). Most mainstream guidance frames REIT funds as a smaller allocation within a diversified portfolio rather than a primary holding. This is general information, not a personalized recommendation.
This article reflects publicly available fund data as of the “last updated” date above and is provided for informational purposes only — it is not a recommendation to buy or sell any security. Expense ratios, yields, holdings, and interest rate conditions referenced above change over time; always verify current data directly on each issuer’s official fund page and confirm tax treatment with a licensed tax professional before making an investment decision. Read our full Disclaimer and Privacy Policy for more information.