REIT Risks Every Investor Should Understand

REIT shareholders lose money in six main ways: rising interest rates, debt that comes due when borrowing is expensive, a lasting slump in the property type a REIT owns, falling book values at mortgage REITs, being unable to sell a non-traded REIT, and dividend cuts. Equity REITs lost 24.95% in 2022, including dividends, while the 10-year Treasury yield rose from 1.52% to 3.88%. Choosing REITs by yield alone, valuing them on earnings per share, and putting in money you may need within a few years make these losses worse.

How do rising interest rates hurt REIT prices?

MAA, an apartment REIT, describes two effects in its 2025 annual report. When market interest rates rise, buyers of REIT shares may expect a higher dividend yield, which for the same dividend means a lower share price. Higher rates also raise the REIT's future borrowing costs, which can leave less money for dividends. What REITs are and how they work covers the payout rule and the other tests a REIT must pass.

Mortgage REITs, which hold real estate loans and mortgage securities instead of buildings, lost 26.61% in 2022. The pattern repeated in September 2026: the Federal Reserve raised its benchmark rate by a quarter point, the 10-year Treasury yield closed the month at 5.27%, and Nareit's equity REIT index fell 5.7% for the month while its mortgage REIT index fell 13.7%.

Before you buy, look up how much of the REIT's debt carries a fixed rate and when it comes due; both appear in its annual report (Form 10-K). MAA had 87.5% of its debt at fixed rates at the end of 2025 and spreads its maturities across years to limit how much reprices at once. Fixed-rate debt delays the effect of higher rates until the debt has to be refinanced.

What happens when a REIT's debt comes due?

To keep its tax status, a REIT must distribute at least 90% of its REIT taxable income, which limits how much cash it can keep to repay loans. MAA's annual report warns that if it cannot refinance on acceptable terms, it might have to sell apartment communities on disadvantageous terms, and it says its borrowing costs remain elevated compared with its existing fixed-rate debt. How REITs perform during recessions shows how REITs with debt coming due in 2008 and 2009 fell further than others.

Debt loads differ by sector. In Nareit's August 2026 tables, the average office REIT's debt was 61.9% of its total capitalization (its debt plus the market value of its equity), against 32.8% for the average industrial REIT. Across all equity REITs, the figure was 34.4% in the second quarter of 2026.

How long can a property sector slump last?

Office REITs show how long one can run. Total returns with dividends, from Nareit:

Compounded, those six years left office REIT shareholders about 34% behind, while all equity REITs gained about 20%. Office REITs also paid $2.78 billion in dividends in 2024, down 28% from $3.84 billion in 2023.

Why do mortgage REIT book values swing?

Mortgage REITs buy mortgage-backed securities or loans largely with borrowed money, so their book value per share, the net worth behind each share, moves with bond prices. At AGNC Investment, borrowings and related positions were 7.9 times the sum of total shareholders' equity (including preferred equity) and unsettled equity issuances, with goodwill excluded, at September 30, 2026. Its tangible book value per share fell 16.9% in the third quarter of 2026, from $8.58 to $7.13, as interest rates rose sharply. Counting the $0.36 dividend, AGNC's return on book value for the quarter was -12.7%.

Why can a non-traded REIT be hard to sell?

Non-traded REITs are registered with the SEC but not listed on an exchange. The SEC warns that they cannot be sold readily, that a listing or liquidation letting you cash out might not come for more than 10 years, and that redemption programs, under which the REIT buys back shares, are limited, may pay less than full value, and can be stopped without notice. It also warns that upfront fees can reach 15% of the offering price and that distributions may be paid from offering proceeds or borrowing, which lowers share value.

In April 2026, Starwood Real Estate Income Trust limited share buybacks to requests made after a stockholder's death or qualifying disability and to accounts under $5,000, each group capped at $5 million a month, and cut its monthly distribution. Publicly traded vs non-traded REITs compares costs and exit rules.

When do REITs cut dividends?

A REIT's board sets the dividend, and the 90% rule ties the minimum payout to taxable income, not to a fixed amount. MAA's annual report says that if a significant, sustained decline in operations left it without enough money to pay its debt and its current dividend, it would have to reduce the dividend. The recessions guide linked above shows how far REIT dividends fell across the market in 2009 and 2020.

Which earnings measure to check depends on the REIT type:

• Equity REITs (property owners): compare the dividend with AFFO, adjusted funds from operations, which adds real estate depreciation back to net income and usually subtracts routine property spending. Nareit says there is no single agreed definition of AFFO, so read the REIT's own definition in its earnings release and track its payout over several quarters. FFO and AFFO explained shows the payout math.
• Mortgage REITs: use the earnings measure the company reports, and read it next to book value. AGNC's measure, net spread and dollar roll income, leaves out gains and losses on its securities and hedges; it was $0.37 a share for the third quarter of 2026 against a $0.36 dividend, in the same quarter that book value per share fell 16.9%.

REIT dividend yields explained lists other warning signs, such as a yield far above the sector's.

Which investor mistakes make REIT losses worse?

1. Buying the highest yield. A yield rises when the price falls, so the highest yields often belong to REITs whose prices have dropped. Mortgage REITs yielded 15.68% at the end of September 2026, yet with dividends reinvested their index was still 21.6% below its January 2020 level.
2. Valuing REITs on earnings per share. Depreciation lowers a property REIT's net income, so its price-to-earnings ratio looks higher than its price-to-FFO ratio, the share price divided by funds from operations per share. Compare property REITs on price-to-FFO within their sector.
3. Concentrating in one sector or a handful of REITs. The office returns above show how far one sector can trail the rest of the market. A broad REIT index fund spreads your money across sectors; REIT ETFs and mutual funds compares the main funds.
4. Reading a steady non-traded REIT share value as low risk. The SEC notes that these values come from periodic or annual appraisals and may not be accurate or timely.
5. Using money you may need soon. With dividends reinvested, equity REITs fell 31.4% from the end of 2021 to October 2023 and did not regain their end-of-2021 level until April 2026; at the end of September 2026 they were 3.2% below it again. Selling at the October 2023 low would have locked in that 31.4% loss.