REIT Sectors Explained: How Each One Earns Income and Its Risks

Key takeaways

• A REIT's sector is the kind of property it owns. Most REITs focus on one sector, so the sector shapes how the REIT earns money and what can go wrong.
• Some sectors earn steady rent under long leases. Others rent space by the month or the night, so their income moves faster in both directions.
• The tax rules shape every sector. A REIT must earn mostly rent and similar income, so hotels and senior housing need special structures, and casinos are usually leased to separate operators.
• Each sector has its own risks: tenant credit in net lease, new supply in industrial and self-storage, operator risk in healthcare, technology change in data centers, and more.
• No sector is low risk. REIT prices and dividends can fall in any sector, distributions are not guaranteed, and you can lose some or all of your investment.
• In my offering records as of October 2026, the DST property types with the most offerings are multifamily (31 of 76), industrial (18) and net lease (15). Each one has a matching REIT sector.

What are REIT sectors?

A REIT, or real estate investment trust, is a company that owns or finances income-producing real estate. It gets special tax treatment if it meets a set of rules in the tax code. If you're new to REITs, start with my guide on what a REIT is and how it works.

A sector is simply the type of property a REIT focuses on. The SEC's bulletin on publicly traded REITs notes that "Most REITs specialize in a single type of real estate." One REIT might own only apartments. Another might own only cell towers. A few own a mix.

Why does the sector matter so much? Because two REITs can both "own real estate" and still have almost nothing in common. A warehouse REIT with tenants on multi-year leases behaves very differently from a hotel REIT whose rooms are rented one night at a time. The sector tells you where the money comes from, how fast it can change, and which risks are most likely to bite.

I'm Jerry Baker, the founder of Baker 1031 Investments, and my background is in real estate acquisitions, management and development. My firm offers Delaware Statutory Trust (DST) interests, including programs with a path into a REIT. We don't sell REIT shares. This guide is education only. It doesn't forecast any sector, and it isn't a recommendation to buy or avoid one.

How the tax rules shape every sector

Before we go sector by sector, it helps to know the rules that all REITs share. They explain a lot of what you'll see below.

The income tests

Under 26 U.S.C. §856(c), at least 75% of a REIT's gross income must come from real estate sources, such as "rents from real property" and interest on mortgages. At least 95% must come from those sources plus other passive income, such as dividends and interest.

So a REIT has to earn its money mostly as a landlord or a real estate lender. It can't simply run a business, like a hotel or a nursing home, and keep the operating profits. That one rule explains the structure of several sectors.

What counts as real property

The Treasury regulation at 26 CFR §1.856-10 defines real property as "land and improvements to land." It lists structures that count, including "microwave transmission, cell, broadcast, and electrical transmission towers," pipelines and parking facilities. Its examples treat the power, cooling and security systems in a data center building as part of the real property. That is how towers and data centers fit inside REITs.

The payout rule

Under 26 U.S.C. §857(a), a REIT must generally pay dividends equal to at least 90% of its taxable income, not counting net capital gain. That leaves little cash to reinvest. It shapes how "growth" works in every sector, which I cover near the end.

The taxable REIT subsidiary

A taxable REIT subsidiary, or TRS, is a regular corporation that a REIT owns. It pays corporate tax on its own profits, so it can do things the REIT itself can't. Section 856(d)(8)(B) lets a REIT lease a hotel (a "qualified lodging facility") or a "qualified health care property" to its own TRS and still treat the rent as qualifying, if an "eligible independent contractor" runs the property. An eligible independent contractor is an outside operating company. This is the structure behind many hotel and senior housing REITs.

REIT sectors at a glance

Here's a quick comparison before the details. These are general tendencies, not predictions. Lease terms vary widely by property and by REIT. Read each REIT's filings for its actual terms.

What is a net lease REIT?

A net lease REIT owns buildings leased to tenants who pay most of the property's costs. In a triple-net lease, often called NNN, the tenant pays property taxes, insurance and maintenance on top of rent. Think freestanding stores, restaurants, auto service shops, distribution buildings and some offices, usually with one tenant per building.

How it earns income. The REIT collects rent. Because the tenant pays most of the costs, the REIT's own expenses are low and its income is fairly predictable while leases are in place. Many net leases include set rent increases, such as a small bump each year or every few years.

Specific risks.

• Tenant credit. With one tenant per building, a single bankruptcy or move-out can drop that building's rent to zero.
• Lease rollover. When a long lease ends, the tenant may leave or ask for lower rent. Re-leasing a single-tenant building can take time and money.
• Interest rates. Because the income behaves somewhat like a bond's, net lease REIT values can be sensitive to interest rates. The SEC notes that "REIT investments may be sensitive to a changing interest rate environment."
• Concentration. A REIT with a few large tenants, or many tenants in one industry, carries that industry's risk.

Net lease property is also one of the most common types in DSTs. My guide to DST property types covers net lease DSTs and how they compare.

Industrial REITs

Industrial REITs own warehouses, distribution centers, fulfillment buildings, cold storage and light manufacturing space. Tenants include retailers, shippers, wholesalers and manufacturers.

How it earns income. Rent from tenants, usually under multi-year leases. Many industrial leases are net or close to net, so tenants pay much of the operating cost. Cold storage is a special case. The Treasury regulation's examples treat a refrigerated warehouse's freezer walls and central cooling system as part of the real property.

Specific risks.

• New supply. Warehouses can be built relatively quickly. If developers build more space than tenants need in a market, rents and occupancy can fall.
• Tenant concentration. A large building may have one tenant. If that tenant leaves, the space can be hard to fill.
• Changes in how goods move. Shifts in shopping, shipping and supply chains can change which locations tenants want.
• Location. Older or poorly located buildings can lose tenants to newer ones nearby.

Residential REITs

Residential REITs own places where people live. The main groups are apartment REITs and single-family rental REITs. I cover manufactured housing separately below.

How it earns income. Rent from residents, usually under leases of about a year. Some REITs also earn fees for parking, pet rent, storage and other services a landlord typically provides. Single-family rental REITs own large numbers of individual houses and rent them out.

Specific risks.

• Short leases. Rents reset often. That means income can rise quickly when demand is strong and fall quickly when it isn't.
• New supply. New apartment buildings in a market compete for the same renters.
• Local economies. Job losses in a city can reduce demand and raise vacancies.
• Rent rules. Some cities and states limit rent increases or add tenant protections. Those rules can change.
• Operating costs. Property taxes, insurance, repairs and payroll can rise faster than rents.
• Scattered properties. Single-family homes are spread out, so maintenance and management can cost more per unit.

Manufactured housing REITs

Manufactured housing REITs own communities where residents place factory-built homes on leased sites. Some also own recreational vehicle parks.

How it earns income. In many communities, residents own their homes and rent the land underneath. The REIT collects site rent. Because moving a home is expensive, residents often stay a long time. Some REITs also rent out homes they own in the community.

Specific risks.

• Rent rules. Some states and cities regulate site rent increases. Residents with limited incomes may push back on increases, and new rules are possible.
• Local markets. A community depends on demand in its area.
• Natural hazards. Communities in storm or flood areas can face property damage and higher insurance costs.
• Reputation and regulation. How a community treats residents can draw attention from regulators.

Healthcare REITs

Healthcare REITs own property used to deliver care. The main groups are medical office buildings, senior housing, skilled nursing facilities and hospitals. Life science buildings are sometimes grouped here, but I cover them separately.

How it earns income. It depends on the structure, and this is the key point about healthcare REITs.

• Leased to an operator. The REIT leases a building to a doctors' group, health system or care operator and collects rent. The operator runs the business and takes the operating risk.
• Operated through a TRS. For senior housing, a REIT can lease the property to its own taxable subsidiary, which hires an outside operator to run it. Section 856(d)(8)(B) allows this for a "qualified health care property" run by an "eligible independent contractor." Under this setup, the REIT keeps more of the upside when the property does well. It also takes more of the downside when occupancy or costs move the wrong way.
• Medical office. These buildings are often leased to physician groups and health systems, much like regular office space.

Specific risks.

• Operator health. If a tenant-operator struggles, it may not pay full rent. Replacing an operator can be slow and costly.
• Government reimbursement. Many healthcare operators depend on payments from government programs. Changes in those payments affect the operators' ability to pay rent.
• Labor costs. Senior housing and nursing care need a lot of staff. Rising wages can cut operating income in a TRS structure.
• Regulation and licensing. Healthcare facilities are heavily regulated. Licensing problems can disrupt operations.
• Specialized buildings. A hospital or nursing facility can be hard to convert to another use.

Life science REITs

Life science REITs own laboratory and research buildings leased to drug, biotech and research firms. The buildings have heavy ventilation, power and plumbing for lab work.

How it earns income. Rent from research tenants, usually under multi-year leases. Some REITs also develop new lab buildings, which adds risk and potential reward.

Specific risks.

• Tenant funding. Many tenants are young companies that depend on raising money. If funding dries up, some can't pay rent or expand.
• Specialized space. Lab buildings cost more to build and fit out. If tenants leave, re-leasing can take time.
• Clustering. Research firms tend to gather in a few areas. That concentrates the REIT in a handful of markets.
• New supply. Lab space built on speculation can outrun demand in a market.

Data center REITs

Data center REITs own buildings that house computer servers for businesses, cloud providers and network companies. The Treasury regulation's examples treat a data center's customized electrical, cooling, security, fire suppression and humidity systems as part of the real property, which is part of why these buildings fit in a REIT.

How it earns income. Tenants pay rent for space, power capacity and connections. Some data centers lease whole buildings to one large user. Others rent smaller spaces to many tenants who want to connect with each other.

Specific risks.

• Technology change. Server needs change fast. A building designed for one generation of equipment may need costly upgrades for the next.
• Power. Data centers use large amounts of electricity. Power availability and cost can limit growth and squeeze margins.
• Large tenants. A few big users can make up much of the rent. Losing one, or one deciding to build its own, can hurt.
• Heavy spending. Building and upgrading data centers takes a lot of capital, often raised by borrowing or issuing shares.

Cell tower REITs

Cell tower REITs own wireless towers and the land or rights beneath them. The Treasury regulation lists cell towers as an example of real property. One of its examples even treats a government permit to place a tower on federal land as an interest in real property.

How it earns income. Wireless carriers rent space on the tower for their antennas and equipment, usually under long leases. One tower can host several carriers. Some tower REITs also own fiber networks or small cell equipment.

Specific risks.

• Carrier consolidation. There are few large wireless carriers. If two merge, they may remove duplicate equipment from towers.
• Customer concentration. A small number of carriers often provide most of the rent.
• Technology change. New ways of delivering wireless service could change how much tower space carriers need.
• Debt. Tower REITs often use significant debt to buy and build towers.

Self-storage REITs

Self-storage REITs own facilities where people and businesses rent storage units.

How it earns income. Customers rent units, often month to month. The REIT can adjust rents frequently. Some REITs may also earn fees from related services, such as selling packing supplies, and may run those through a taxable subsidiary.

Specific risks.

• Short leases. Month-to-month rent means income can drop quickly if demand weakens or competitors cut prices.
• New supply. Storage facilities are relatively easy to build, so new competition can show up fast.
• Local demand. Demand often depends on people moving, downsizing or changing homes. A slowdown in moves can reduce new rentals.
• Pricing pressure. Introductory discounts to attract customers can lower average rent.

Office REITs

Office REITs own office buildings, from downtown towers to suburban office parks. Some specialize in one city.

How it earns income. Rent from businesses, usually under multi-year leases. Many office leases pass some operating costs through to tenants.

Specific risks.

• Demand for space. Changes in how and where people work can reduce how much space companies need.
• Lease expirations. Rent may look stable for years and then drop when a large lease ends and the tenant leaves or shrinks.
• Re-leasing costs. Attracting new tenants often means paying for building improvements, broker commissions and free rent.
• Building age. Older buildings can lose tenants to newer ones with better amenities.
• Debt. When building values fall, refinancing a loan can be hard.

Retail REITs

Retail REITs own shopping centers, malls, outlet centers and freestanding stores. Shopping centers anchored by a grocery store are a common subgroup. Freestanding single-tenant stores often fall under net lease.

How it earns income. Rent from store tenants. Many retail leases pass property costs through to tenants. Some include percentage rent, an extra amount tied to the tenant's sales above a set level.

Specific risks.

• Store closings and bankruptcies. When a retailer closes stores, the REIT loses rent and may have to fill large spaces.
• Co-tenancy clauses. Some leases let tenants pay less rent or leave if a key anchor store closes.
• Changes in shopping habits. Online shopping can reduce demand for some kinds of store space.
• Property type. Malls, strip centers and grocery-anchored centers can face very different conditions.

Hotel REITs

Hotel REITs, also called lodging REITs, own hotels and resorts. They usually hire separate hotel management companies and often carry well-known hotel brands.

How it earns income. A REIT can't simply run a hotel and keep the profits as qualifying income. Instead, it typically leases its hotels to its own taxable REIT subsidiary. The TRS hires an eligible independent contractor to run them. The TRS pays rent to the REIT, which counts as qualifying rent. Section 856(d)(9)(D) defines a "qualified lodging facility" as a hotel, motel or other place where more than half of the dwelling units are used on a transient basis, meaning for short stays.

Specific risks.

• Nightly pricing. Rooms are rented one night at a time. Income can fall fast when travel slows.
• Operating leverage. Hotels have high fixed costs, such as staff and utilities. A small drop in revenue can mean a large drop in profit.
• Capital spending. Brands often require regular renovations, which cost money whether or not business is good.
• Seasonality and events. Weather, local events and travel patterns can swing results.
• Taxed subsidiary. Profits earned in the TRS pay corporate tax before reaching the REIT.

Gaming REITs

Gaming REITs own casino properties, often including the hotel, restaurants and entertainment space around them.

How it earns income. The REIT leases its casino properties to separate casino operators, usually under long leases. The operator runs the gaming business and pays rent. The tax code explains why. Section 856(d)(9)(D) excludes a property from the "qualified lodging facility" definition if licensed wagering takes place there. So a REIT can't use the hotel TRS structure for a casino. Leasing to an outside operator is the workable path.

Specific risks.

• Operator concentration. A gaming REIT may lease most of its properties to a few operators. Its rent depends on their financial health.
• Gaming regulation. Casinos need licenses, and gaming laws vary by state.
• Demand. Casino revenue depends on visitors' spending, which can fall when the economy weakens.
• Specialized buildings. A casino is hard to convert to another use if an operator leaves.

Farmland REITs

Farmland REITs own farms and lease them to farmers.

How it earns income. Farmers pay rent, either a fixed amount or a fixed amount plus a share tied to crop results. The Treasury regulation explains the line here. Crops growing on the land are part of the land, but harvested crops are not real property. One of its examples treats fruit-bearing plants leased to a tenant as land, while the fruit, once picked, is not. So the REIT earns its money as a landlord, not as a farmer.

Specific risks.

• Crop prices and farm income. If farmers earn less, they may struggle to pay rent or renew at the same level.
• Weather and water. Droughts, floods and water rights can affect land value and tenant income.
• Local land markets. Farmland can be hard to sell quickly.
• Small sector. Fewer companies and less trading can mean less liquidity in the shares.

Timberland REITs

Timberland REITs own forests and grow trees to harvest and sell as timber. Some also sell land and own wood products businesses through taxable subsidiaries.

How it earns income. Mainly from timber sales, plus land sales and leases for things like hunting, recreation and mineral rights. The tax code has special provisions for timber. Section 856 refers to a "timber REIT," defined in part as a REIT with more than half of its asset value in real property held for producing timber. It also has provisions for certain timber gains and for mineral royalty income earned by timber REITs. These rules are technical, and a REIT may run some activities, such as wood products, through taxable subsidiaries.

Specific risks.

• Lumber and log prices. Timber income depends on demand from home building and other uses.
• Natural hazards. Fire, storms, insects and disease can destroy standing timber.
• Long growing cycles. Trees take many years to grow, so decisions made today pay off far in the future.
• Regulation. Environmental rules can limit harvests in some areas.

International REITs

"International REITs" can mean a few different things, so read carefully.

• A U.S. REIT that owns some property in other countries.
• A fund that holds REIT-style companies from many countries.
• A company organized under another country's REIT-style law.

That last group isn't a REIT under the U.S. tax code. Section 856(a) requires a REIT to be an entity that would be taxable as a domestic corporation if not for the REIT rules. Other countries have their own laws for similar companies, with their own rules.

How it earns income. The same ways as domestic REITs: rent and interest, in whatever sectors the company owns.

Specific risks.

• Currency. Rent collected in another currency can be worth more or less in dollars.
• Different laws. Property rights, tenant laws and REIT-style rules vary by country.
• Foreign taxes. Income may be taxed abroad, and the U.S. tax treatment can differ from a U.S. REIT's dividends.
• Political and economic risk. Changes in government policy can affect property values and income.

Specialty and diversified REITs

Specialty REITs

Some REITs own property that doesn't fit the usual boxes. Outdoor billboards are one example. The Treasury regulation lists outdoor advertising displays, such as billboards, as real property when an election under section 1033(g)(3) has been properly made. Other specialty REITs may own things like parking facilities, pipelines or other structures the regulation lists as real property.

How they earn income. Usually rent or license fees from the businesses that use the property.

Specific risks. Specialty markets are often narrow, with few tenants and few buyers. Some face changing regulation or public policy. Because the property is unusual, it may be hard to value or sell.

Diversified REITs

A diversified REIT owns more than one property type, such as office plus retail, or industrial plus apartments.

How they earn income. From whatever mix of property they own.

Specific risks. A mix can spread risk, but it can also make the REIT harder to understand and compare. Management has to be good at several property types at once. Check how the mix has changed over time and why.

Growth REITs vs. income REITs

You'll sometimes see REITs labeled "growth" or "income." These are informal labels, not legal categories. They describe what a REIT emphasizes, not what it will deliver.

What "income REIT" usually means

An income-focused REIT emphasizes paying a steady dividend. It often owns property with long leases, like net lease or some healthcare property. Its pitch is predictability. But dividends from any REIT are not guaranteed and can be cut.

What "growth REIT" usually means

A growth-focused REIT emphasizes raising its income per share over time. It may develop new buildings, buy aggressively, or own property where rents reset quickly. Its dividend may be smaller relative to its share price.

Why growth works differently in a REIT

The 90% payout rule limits how much cash a REIT can keep. So REITs often grow by raising new money. They sell more shares or borrow more. New shares can dilute existing owners if they're sold at a low price. More debt adds risk. When you read about a REIT's growth plans, ask where the money will come from.

Neither label is a promise

A REIT labeled "income" can cut its dividend. A REIT labeled "growth" can shrink. Be wary of sector labels like "defensive" or "inflation-protected." They describe someone's view of the past, not what will happen next. FINRA's REIT investor guide notes that "Changes to interest rates, property values and the economy may also affect the returns of REIT investments," and that any REIT investment carries "the risk that your investment could lose some or all of its value." If you're thinking about how REITs fit with your other investments, my guide on REITs in a portfolio covers that question.

Are some REIT sectors recession-resistant or inflation-proof?

No sector is either one. Labels like "recession-resistant" and "inflation hedge" describe how a sector's leases are built, not what it will do next. Here's how lease structure changes the way a recession or rising prices can reach a sector's income.

How a recession can reach each sector

• Nightly or monthly rent. Hotels and self-storage reset prices often. When demand drops, their income can drop within months.
• Leases of about a year. Apartments and single-family rentals feel a slowdown as leases come up for renewal.
• Long leases. Net lease, industrial, office, cell tower and gaming properties often have multi-year leases. Rent can keep coming in during a slowdown, but only while tenants can pay. One tenant bankruptcy can stop the rent on a building.
• Operator-run property. Senior housing run through a TRS structure, like hotels, feels weaker demand and higher costs directly, because the REIT shares in the operating results.

How inflation can reach each sector

• Short leases can be repriced quickly, so rent can rise with prices. Wages, insurance and property taxes can rise just as fast.
• Long leases with fixed increases can fall behind if prices rise faster than the set bumps. Some leases tie increases to an inflation index instead. The REIT's filings describe its lease terms.
• Net leases pass most property costs to the tenant, which limits the REIT's exposure to rising operating costs. The rent itself may be fixed for years.
• Debt. Rising prices often come with higher interest rates, which can raise borrowing costs in any sector when loans come due.

A sector's lease structure tells you how it is exposed, not how it will perform. My guide on REITs in a portfolio covers how REITs as a group can react to inflation and recessions.

A worked example: same building value, two very different income streams

This is a hypothetical example with round numbers. It doesn't describe any real REIT, property or offering, and the figures are not typical of any of them. It shows how the structure of a sector changes the risk.

Say two REITs each own a $10,000,000 property.

REIT 1: a net-leased store

REIT 1 owns a store leased to one retailer on a triple-net lease. The tenant pays $700,000 a year in rent and also pays the taxes, insurance and upkeep.

• REIT 1's rent income: $700,000
• REIT 1's property costs: close to zero, because the tenant pays them
• All $700,000 is rent from real property, which counts toward both income tests.

REIT 2: a hotel leased to its TRS

REIT 2 owns a hotel. It leases the hotel to its taxable REIT subsidiary for $900,000 a year in rent. The TRS hires an outside management company to run it.

In a normal year:

REIT 2 receives $900,000 in rent. Its TRS also earns $158,000 after tax. The 21% rate comes from 26 U.S.C. §11.

What happens when business slows

Now say travel drops and hotel revenue falls 20%, to $3,200,000. Some costs fall, but many are fixed. Operating costs drop only to $2,600,000.

• Revenue minus costs: $3,200,000 − $2,600,000 = $600,000
• Rent owed to REIT 2: $900,000
• TRS shortfall: $600,000 − $900,000 = −$300,000

The TRS can't cover its rent from operations. Because REIT 2 owns the TRS, the loss ultimately lands on REIT 2's shareholders, either through lower rent, money put into the TRS, or a weaker balance sheet.

Meanwhile, if the store tenant in REIT 1 keeps paying, REIT 1's $700,000 doesn't change. But if that one tenant goes bankrupt and leaves, REIT 1's rent from the building can drop to $0 until a new tenant signs.

The takeaway

Neither structure is lower risk in general. The net lease property swaps day-to-day swings for single-tenant risk. The hotel swaps steadier tenant risk for operating swings. That's why you have to understand a sector before you can judge any REIT in it.

How to compare REIT sectors, step by step

Here's a process for understanding a sector before you look at any single REIT. It isn't a recommendation to buy anything.

Step 1: Identify how the sector gets paid

Is it rent under long leases, rent under short leases, or operating income through a subsidiary? Is it interest, as with mortgage REITs? Write it down in one sentence.

Step 2: Find the lease length and who pays costs

Long net leases mean steadier income but slower adjustment. Short leases mean income can move quickly either way. Note who pays taxes, insurance and repairs.

Step 3: Name the tenants

Who pays the rent? Retailers, wireless carriers, hospital operators, farmers? What would make them stop paying? How many tenants make up most of the rent?

Step 4: Check how easy it is to build more

If new buildings are quick and cheap to build, new supply is a bigger risk. If they're hard to build, existing owners may face less competition, but specialized buildings can be hard to re-lease.

Step 5: Look at debt

Sectors that use more borrowing carry more risk when values fall or rates rise. Read the REIT's filings for its debt levels and when its loans come due.

Step 6: Read the risk factors in the filings

Investor.gov says you can review a REIT's annual and quarterly reports and prospectus through the SEC's EDGAR system. Its REIT page explains how. Each REIT lists the risks specific to its sector. My guide on how to evaluate a REIT walks through the key numbers.

Step 7: Consider how the shares are sold

The same sector can be owned through a listed REIT, a non-traded REIT or a private REIT. Each has different liquidity, fees and price behavior. My guide to non-traded REITs explains those trade-offs.

Step 8: Talk with your financial professional and CPA

A financial professional can help you judge fit. A CPA can explain the tax side. If the money comes from selling investment property, talk with your qualified intermediary, the independent company that holds your sale proceeds during a 1031 exchange, before you do anything.

How REIT sectors compare with DSTs in the same sector

A 1031 exchange lets you sell investment real estate and buy other investment real estate while deferring capital gains tax. If you're doing one, you can't buy REIT shares as replacement property, because they're stock, not real property. You can buy a DST interest, which can qualify as replacement property if the trust is structured correctly and the other 1031 rules are met. My DST guide explains how DSTs work.

Many of the same sectors show up in both. Here's how they differ in practice.

DSTs carry their own risks. They are illiquid. You have very little control. Distributions are not guaranteed, and you can lose your entire investment. Most DSTs are sold only to accredited investors, people who meet SEC income, net worth or license tests, through a private placement memorandum, the legal document for a private offering.

Some DSTs connect to a REIT later. In a 721 exchange, the DST's property can be contributed to a REIT's operating partnership, the partnership through which the REIT owns its buildings, in return for OP units, which are partnership units usually designed to track the REIT's shares. That can keep the gain deferred, but it ends future 1031 exchanges for that money. My 721 exchange guide explains the trade-offs, and my DST vs. REIT comparison covers the bigger picture.

Mistakes to avoid when choosing a REIT sector

These are common mistakes. Each one is easier to avoid once you know the sector.

1. Assuming all REITs behave alike. A cell tower REIT and a hotel REIT have little in common beyond the tax rules.
2. Chasing last year's winning sector. Past results in a sector don't tell you what comes next.
3. Ignoring lease length. Long leases slow down both good and bad news. Short leases speed them up.
4. Overlooking the operator. In healthcare, gaming and hotels, the operator's health drives the REIT's income.
5. Missing tenant concentration. A REIT with a few big tenants carries their credit risk.
6. Underestimating new supply. Sectors where buildings are easy to build can see rents fall when too much space arrives.
7. Trusting sector labels. "Defensive," "growth" and "income" are opinions, not promises. See the section on recession and inflation above.
8. Forgetting the structure. A TRS structure means more upside and more downside than a straight lease.
9. Mixing up a sector REIT with a sector DST. Their liquidity, control and tax treatment are very different.
10. Putting everything in one sector. Concentration in one property type can hurt when that sector struggles.

What my data shows

My offering records as of October 2026 cover DSTs, not REITs. But DST sponsors buy many of the same property types that REITs own. Here's what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. These figures describe the offerings I track. They aren't a forecast, and they say nothing about how any sector, REIT or DST will perform.

Which property types lead

In my offering records as of October 2026, multifamily is the largest DST property type, with 31 offerings (41%). Industrial follows with 18 offerings (24%), and net lease follows with 15 offerings (20%). Self-storage (5), retail (4) and medical office (3) round out the list.

The REIT connection

Many of these DSTs can later become part of a REIT. In my offering records as of October 2026, 44 offerings (58%) include an optional 721 exit into a REIT's operating partnership, and 13 (17%) make it mandatory. Another 17 (22%) have no 721 exit, and 2 are unclear. If a DST you own has a 721 exit, its sector can end up as part of a much larger REIT portfolio.

In my offering records as of October 2026, the median DST minimum investment is $100,000. When we talk, I can walk you through the DST offerings I currently have available, sector by sector. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC.

Frequently asked questions

What are the main REIT sectors?

Common REIT sectors include net lease, industrial, residential, manufactured housing, healthcare, life science, data center, cell tower, self-storage, office, retail, hotel, gaming, farmland and timberland. Some REITs own a mix, and some own specialty property such as billboards.

Why do hotel REITs use a taxable subsidiary?

A REIT must earn mostly rent and similar income, so it can't simply run a hotel and keep the profits. Instead, it leases the hotel to its own taxable subsidiary, which hires an outside operator. The rent the subsidiary pays can count as qualifying income.

How do healthcare REITs make money?

Some lease buildings to doctors' groups, health systems or care operators and collect rent. Others, mainly in senior housing, lease property to their own taxable subsidiary, which hires an outside operator. The second setup brings more upside and more downside.

Are cell towers really real estate?

For REIT purposes, yes. The Treasury regulation on REIT real property lists cell towers as structures that count. Tower REITs earn rent from wireless carriers that place equipment on the towers.

Why don't gaming REITs run their own casinos?

The tax code excludes properties with licensed wagering from the hotel definition that lets a REIT use a taxable subsidiary. So gaming REITs usually lease their casinos to separate operators, who run the business and pay rent.

Can a REIT own farmland?

Yes. Land and crops still growing on it count as real property, so a REIT can own farms and lease them to farmers. Harvested crops aren't real property, which is why farmland REITs act as landlords rather than farmers.

Is any REIT sector low risk?

No. Every sector has its own risks, from tenant bankruptcies to new supply to operator trouble. Share prices and dividends can fall in any sector, and distributions are not guaranteed.

What is the difference between a growth REIT and an income REIT?

They're informal labels. An income-focused REIT emphasizes a steady dividend, while a growth-focused REIT emphasizes raising income per share over time. Neither label is a promise, and either kind can cut its dividend.

What is a diversified REIT?

A diversified REIT owns more than one property type. A mix can spread risk, but it also requires management to handle several sectors well. Read how the mix has changed and why.

Can I own a single sector through a 1031 exchange?

Not through REIT shares, which are stock and don't qualify as replacement property. A DST interest in one property type can qualify if the other 1031 rules are met. DSTs are illiquid, you have little control, and you can lose your entire investment.

Before you act

This guide is for education only. It isn't tax, legal or investment advice, and it isn't a recommendation to buy or avoid any sector or security. Please confirm any decision with your CPA, your attorney and, if you're selling property, your qualified intermediary.

Sources

• 26 U.S.C. § 856, Definition of real estate investment trust (Cornell LII)
• 26 U.S.C. § 857, Taxation of real estate investment trusts and their beneficiaries (Cornell LII)
• 26 U.S.C. § 11, Tax imposed on corporations (Cornell LII)
• 26 CFR § 1.856-10, Definition of real property (Cornell LII)
• Investor.gov, Investor Bulletin: Publicly Traded REITs (2016)
• Investor.gov, Real Estate Investment Trusts (REITs)
• FINRA, Real Estate Investment Trusts: Alternatives to Ownership (2022)