A Beginner’s Guide to REIT Mortgages



Couple in front of their house

Couple in front of their house

More than 65% of Americans now own real estate, according to the Census Bureau. While a significant proportion probably live in their homes, many homeowners are buying property for investment purposes instead. However, investing in real estate is not for everyone, as there are many aspects of real estate ownership that all investors dislike (like working with tenants or hiring a property manager). If you are not interested in buying real estate outright, but would still like to add real estate investments to your portfolio, there is another option to consider: a mortgage REIT.

There are many ways to invest in real estate, and financial advisor can provide valuable guidance on which methods are appropriate for your goals, timeline and risk profile.

What is a REIT?

Standard REIT, or real estate investment fund, is a company that invests in real estate. This could mean funding the construction of a new housing estate, funding a medical facility, or even building cell towers. In some cases, the REIT will also own and operate real estate. But in any case, these securities represent equity investments.

REITs enable investors of all levels invest in real estatebuying into portfolios. The REIT will use this money to fund certain real estate projects; when these projects generate income – through the sale of units or possibly the lease of office space – investors will receive a share of that income in the form dividends

Adding a REIT to your portfolio can be a great way to diversify the equity component of your investments, as well as create passive cash flow… While no investment is ever guaranteed, REITs have traditionally generated significant returns.

How Mortgage REIT Works

REIT documents

REIT documents

Mortgage REITs, also called mREITs, work a little differently. This is not an equity investment; in fact, they are the lender. They play an important role in providing liquidity to the real estate market, helping finance both businesses and homeowners. When using mREIT, the investment lies in the mortgage of the property itself. MREIT will invest in mortgages and mortgage-backed securities (MBS) for commercial or residential real estate. Mortgage REITs will either issue mortgages or buy these mortgage-backed securities in the future.

With mREITS, homeowners and developers can access mortgage finance for their personal property and commercial projects, while investors can invest in these mortgages and make a profit.

Investors can invest in mREIT like a mutual fund, exchange-traded fund(ETF) or publicly traded stock. MREIT’s goal is to make a profit between the cost of financing mortgages and paying interest on those assets. After purchasing the shares of the mortgage REIT, investors will benefit from the net income, which is recognized by mREIT. In most cases, investors will receive regular dividends from their investment in mREIT.

Benefits of a Mortgage REIT

Not sure if mREIT is right for you? There are several key benefits to keep in mind.


If you’re looking for a strong real estate investment – but don’t necessarily want to buy (and manage) physical property – mortgage REITs may be the answer. This investment allows you to finance and profit from real estate projects without the hassle and headaches of day-to-day management. You don’t have to worry about construction delays, availability or water heater issues with tenants. You simply invest in the shares of the mortgage REIT of your choice.


According to the IRS, at least 90% of taxable income mREIT must be paid to shareholders. Because of this, funds tend to be well managed and investors can usually expect high dividends on a regular basis. In other words, mREIT can be a good source passive income

Industrial support

Mortgage REITs play a very important role in providing liquidity to mortgage businesses funding personal or commercial projects. Investing in mREIT allows investors to support the mortgage industry and keep it stable. It’s a self-replicating cycle: Investors continue to benefit from the strong mortgage industry that their investments are helping to maintain.

Mortgage REIT risks

Like all investments, mREIT is not without risk. Some of these can affect the recognized return on your investment, so it’s important to consider each one.

Early termination of contracts

The mortgage lender’s profit is primarily generated from interest earned over the maturity of the loan. If the borrower completes early maturity – either early repayment of the loan, or refinancing at a lower rate from another lender – this will affect the overall profit. Depending on which mortgage loans your mREIT invests in, early terminated contracts can unexpectedly impact your bottom line.

Interest rates

Since interest rates and interest rates are integral to the success of a mortgage REIT, interest rate fluctuations play a direct role. If, for example, market interest rates fall, new loans and purchased mortgages will have a lower rate of return than those issued at a higher interest rate. Also, once mortgage rates fall, mortgage borrowers tend to refinance their loans to take advantage of lower rates. This can lead to lower profit margins on some loans and loss of other loans in general.

Default Borrower

Mortgage REITs are contingent on the contractual repayment of the mortgage loan. However, if the borrower defaults on their obligations, this could seriously affect the lender (in this case, your mREIT). Risks associated with loan defaults are higher when investing in mortgages not secured by a government agency such as Freddie Mac or Fannie Mae.

The essence

Mortgage Investor REIT at Work

Mortgage Investor REIT at Work

Mortgage REITs offer an easy and straightforward way to invest in real estate. Investors can take advantage of mortgage loan returns without the hassle of property management, often with stable and reliable dividend yield. But they are not without risk. Before adding a mortgage REIT to your portfolio, it is important to note both the advantages and disadvantages of this real estate investing option.

Investing Tips

  • There are many ways to invest in real estate. Understanding all the possible options can be a daunting task. This is why working with a financial advisor makes a lot of sense. Finding a financial advisor shouldn’t be difficult. SmartAsset’s matching tool can connect you to several in your area in minutes. If you are ready start now

  • Want to see what your portfolio will look like in a decade? SmartAsset’s investment calculator can help you with this. Indicate how much you have invested, how much you are depositing, and what yield you expect. We will then show you how your investment grows five, 10, or even 30 years ahead.

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