3 Ways to Own Income-Producing Real Estate. They Pay Up to 3.74% and Fees Start at 0.08%

Three ETFs that own largely the same landlords charge annual fees ranging from 0.08% to 0.37%. The iShares Core U.S. REIT ETF (NYSEARCA:USRT) charges the lowest fee of the three. The Vanguard Real Estate ETF (NYSEARCA:VNQ) pays the most income. The iShares U.S. Real Estate ETF (NYSEARCA:IYR) costs the most, and the past year gave its holders little in return for that.

Why Landlord Stocks Pay So Much

A real estate investment trust (REIT) is a company that owns income-producing property, such as apartments, warehouses, offices, or shopping centers, and collects the rent. To qualify for REIT tax treatment, federal law requires it to pay out dividends equal to at least 90% of its REIT taxable income each year.

A distribution is the cash a fund passes along to its shareholders. These ETFs gather the dividends from dozens of REITs and pay them out quarterly. That payout rule drives the yields you see here, because REITs cannot hold on to most of their profits. The tradeoff is that growth has to be funded with borrowed money or new shares, and that becomes important when rates rise.

USRT Holds Only Landlords and Posted the Best Year

USRT tracks the FTSE Nareit Equity REITs 40 Act Capped Index. That index covers U.S.-listed equity REITs and excludes infrastructure REITs, mortgage REITs, and timber REITs. So your money goes to owners of physical buildings. Cell tower companies and mortgage lenders are left out.

The fee is 0.08%, according to the fund’s SEC prospectus dated August 31, 2026. Its trailing yield is 2.8%, and its one-year total return of 13% led the group.

Payouts vary a lot from quarter to quarter. The September distribution was $0.47 per share, while March paid only $0.21. If you need the same check every quarter, plan around that variability. Leaving out towers also means USRT misses that corner of the market when it leads.

VNQ Pays the Most Income and Holds the Widest Mix

VNQ follows the MSCI US Investable Market Real Estate 25/50 Index. Vanguard describes that benchmark as tracking “publicly traded equity REITs and other real estate-related investments“. MSCI’s Investable Market indexes cover large, mid, and small companies, and the 25/50 caps keep any single holding from taking over the fund.

Vanguard’s fact sheet dated June 2, 2026 lists a 0.13% fee. VNQ’s 3.7% trailing yield tops all three, and it returned 7% over one year.

Its quarterly payouts also move around less. The most recent payout came to $0.80 per share, slightly below the prior $0.86. VNQ suits investors who care most about income. It has lagged USRT on total return, though.

IYR Reaches Beyond REITs and Charges the Most

IYR tracks the Dow Jones U.S. Real Estate Capped Index, which iShares describes as covering U.S. equities in the real estate sector. Because the index is defined by sector, it can include real estate companies that are regular corporations, such as developers and property managers, alongside REITs.

The fee is 0.37%, per the SEC prospectus dated July 31, 2026. IYR yields 2.5%, and its one-year total return was 6%. Non-REIT holdings are not bound by the payout rule, which helps explain why a broader fund can yield less.

Highest Fee, Lowest Income, Weakest Return

The return gap between USRT and IYR may have causes beyond the fee. The three indexes hold different companies, and one year of results says nothing reliable about the next.

How REIT Distributions Get Taxed

Under IRS Publication 550 for tax year 2025, ordinary dividends are taxed as ordinary income. Qualified dividends get the same 0%, 15%, or 20% maximum rates that apply to net capital gain.

To qualify, you must also hold the shares for more than 60 days during the 121-day period around the ex-dividend date.

Capital gain distributions are among the payouts that do not count as qualified dividends, even if they appear in box 1b of Form 1099-DIV. Non-dividend distributions, also called return of capital, lower your cost basis instead of being taxed right away. Once that basis reaches zero, further amounts are taxed as capital gains. For REITs specifically, a dividend declared in October through December and paid in January counts as received on December 31.

Judging Whether a Payout Can Last

Payout ratios based on earnings mislead with REITs. Accounting rules require depreciation charges on buildings that often keep or gain value, so reported earnings understate the cash a property actually produces. A REIT can pay out more than its reported earnings and still be on solid footing.

The industry uses funds from operations (FFO) instead: net income with real estate depreciation added back and gains from property sales removed. Adjusted funds from operations (AFFO) goes a step further by subtracting the recurring capital spending needed to keep buildings rentable, like new roofs and HVAC replacements. AFFO comes closest to the cash actually available for dividends.

Rising Rates Are the Biggest Risk

REITs feel higher rates in two ways. Property is usually financed with debt, so refinancing gets more expensive. Bonds also compete directly for income investors’ money. The 10-year Treasury yield rose from 4.8% in early September to 5.2%, above all three funds’ trailing yields.

All three funds fell over the past month. USRT lost 3%, VNQ 3%, and IYR 3%. REIT distributions change and can be cut, while Treasury interest is fixed by contract.

Matching the Fund to the Goal

USRT offers pure property exposure for the lowest fee of the three, a profile that lines up with cost-focused long-term holders. VNQ fits investors who rank current income first and want the broadest mix of company sizes. IYR’s higher cost relative to the other two is the main hurdle for buy-and-hold investors considering it.

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