International REITs: Investing in Global Real Estate

International REITs give a U.S. investor property markets and currencies whose returns can differ sharply from U.S. REITs' returns: in 2025, Vanguard's international real estate ETF returned 21.98% while its U.S. real estate ETF returned 3.18%. The simplest way to own them is a fund such as Vanguard Global ex-U.S. Real Estate ETF (VNQI), which charges 0.12% a year and held 729 stocks on September 30, 2026. Two costs come only with foreign holdings: currency swings and foreign tax withheld from dividends, which you can usually claim as a credit in a taxable account but lose inside an IRA.

What do international REITs add to a U.S. portfolio?

A REIT (real estate investment trust) is a company that owns or finances income-producing property; what REITs are and how they work covers how they are built. Most listed REIT value is in the United States. In iShares Global REIT ETF (REET), which tracks a worldwide REIT index, U.S. REITs were 73.36% of the fund on October 22, 2026, followed by Australia at 5.68%, Japan at 4.58%, and the U.K. at 3.93%. At market weight, about a quarter of a REIT allocation would sit outside the United States.

International real estate funds can hold more than REITs. VNQI's index covers REITs and real estate operating companies in about 35 countries, and on September 30, 2026, real estate companies that are not REITs, such as developers and operating companies, made up about 52% of the fund's stocks. Its largest markets were Japan (21.8%), Australia (10.8%), Hong Kong (8.5%), the U.K. (6.7%), and Singapore (6.0%), and it also held emerging markets such as China (5.0%) and India (3.9%).

The international fund has led in some years and trailed over longer periods:

Both columns are Vanguard's total returns at net asset value, the per-share value of each fund's holdings, with dividends reinvested. In 2025, the international fund beat the U.S. fund by almost 19 percentage points; over 10 years, it trailed by about 2 points a year. In 2026 through September 30, VNQI lost 6.95%.

How can you buy international REITs?

A U.S.-registered fund is the most direct route. VNQI is an international fund, holding only companies based outside the United States, while REET is a global fund that also holds U.S. REITs.

If you already own a U.S. REIT fund, an international fund such as VNQI adds only the non-U.S. part, while a global fund such as REET mostly repeats the U.S. REITs you already hold. VNQI pays its dividend once a year, so it does not provide monthly or quarterly income. REIT ETFs and mutual funds compares the U.S. funds.

You can also buy a single foreign company's shares:

• ADRs. An American depositary receipt (ADR) is a certificate issued by a U.S. bank that represents shares of a foreign company and trades in U.S. dollars. The bank typically subtracts a custody fee from the dividends (the SEC's example is $20 to $50 on 1,000 ADRs) and may charge for currency conversion. Level 1 ADRs trade over the counter (through dealers rather than on an exchange), and the foreign company files no reports on the SEC's EDGAR system, so you rely on the company's own disclosures.
• PFIC check. Before buying a foreign company's shares directly or as ADRs, ask whether it is a passive foreign investment company (PFIC), one with at least 75% of its income from passive sources or at least 50% of its assets held for passive income; in a taxable account, a PFIC can require a separate IRS Form 8621 for each company and extra tax plus an interest charge on a gain when you sell.

How do currency swings affect your return?

Foreign REITs collect rent and pay dividends in their home currency, so the exchange rate changes what you receive in dollars. Vanguard lists currency risk among the risks of VNQI and notes that country and currency risks are especially high in emerging markets.

Example: a Japanese REIT share costs 150,000 yen when $1 buys 150 yen, so it is worth $1,000. If the share price in yen stays the same but the dollar rises to 165 yen, the share is worth 150,000 / 165 = $909.09, a 9.1% loss in dollars. If the dollar falls instead, the same share gains value in dollars. These swings come on top of the property, debt, and interest rate risks covered in REIT risks every investor should understand.

How are dividends from foreign REITs taxed?

Foreign governments withhold tax from the dividends that VNQI's holdings pay it. For 2025, the foreign tax Vanguard passed through equaled 7.23% of the cash dividends the fund paid out.

In a taxable account, you can claim your share of that tax as a foreign tax credit, which reduces your U.S. income tax dollar for dollar, or as an itemized deduction. Three rules shape what you get:

1. The fund must pass it through. A fund can pass foreign taxes through to its shareholders only if more than half its assets at the end of its tax year are stock or securities of foreign companies, and it chooses to. VNQI did for 2025, and your Form 1099-DIV shows your share. A global fund that is mostly U.S. stocks, such as REET at 73% U.S. in October 2026, would not meet that test.
2. Small amounts skip Form 1116. If all your foreign income is passive income such as dividends, all of it is reported to you on Forms 1099, and your foreign taxes are $300 or less ($600 married filing jointly), you can claim the credit without filing Form 1116. Otherwise, Form 1116 limits the credit to the U.S. tax on your foreign income.
3. Most of the dividend is ordinary income. Vanguard reported that only 12.97% of VNQI's 2025 ordinary dividends were qualified foreign dividends, the kind taxed at the lower long-term capital gains rates. The rest is taxed at your ordinary income rate.

Why is the foreign tax credit lost inside an IRA?

IRS Publication 514 allows the credit only on foreign income you are subject to U.S. tax on. Dividends earned inside a traditional or Roth IRA are not taxed to you as they are earned, and the IRS Office of Chief Counsel has written that an IRA owner cannot claim a credit for foreign tax withheld from income paid to the IRA. The IRA cannot use the credit either, because it is exempt from U.S. tax.

Example: VNQI pays you $1,000 in cash dividends, with foreign tax passed through at the 2025 rate.

1. Foreign tax: $1,000 x 7.23% = $72.30.
2. In an IRA: the $72.30 is a permanent cost.
3. In a taxable account: your Form 1099-DIV reports $1,072.30 of ordinary dividends, the cash plus the tax withheld for you, and $72.30 of foreign tax. If that is your only foreign tax for the year, you can cut your U.S. tax by $72.30 without filing Form 1116, but you owe U.S. tax on the full $1,072.30, mostly at ordinary income rates.

When IRA space is limited, the lost credit is one reason to hold an international fund in a taxable account and a U.S. REIT fund in the IRA. U.S. REIT dividends follow different rules, so compare both before deciding which fund goes where; REIT tax treatment covers the U.S. side.