5 Best Real Estate Stocks to Invest in

Introduction

Real estate stocks have always been a favorite of many conservative investors because they tend to be stable and can provide decent dividends.

Among the dozen or so real estate stocks I track, I have picked out five stocks worth considering investing in 2025 based on their historical performance and growth potential. In this article, I will analyze each one and tell you why I am bullish on them.

Key trends in the real estate sector

Market overview

The US real estate market may see a modest recovery in 2025. PWC mentioned in its report "Emerging Trends in Real Estate 2025" that the real estate industry has shown a trend of recovery as post-epidemic chaos subsides and positive cyclical forces strengthen.

PWC's survey of the real estate industry and real estate leaders showed that 68% of respondents believed that the profit outlook for real estate companies in 2025 will be good or excellent, compared with 41.3% a year ago.

Residential trends

According to reports from ULI, economic growth and family formation will support demand in the residential market. About the sales data, existing home sales in January 2025 increased by 2% year-on-year, marking the fourth consecutive month of annual sales growth.

CoreLogic HPI forecasts that home prices will rise 4.1% YoY between December 2024 and December 2025. CoreLogic’s forecast for home price growth is climbing, suggesting that a new spring homebuying season is just around the corner.

Business trends

CBRE’s report noted that economic growth and solid real estate fundamentals will drive a modest recovery in real estate investment activity in 2025. CBRE expects an upcycle in office space in 2025, and a possible shortage of quality office space by the end of the year.

CBRE also mentioned that in 2025, industrial real estate will continue to benefit from the growth of e-commerce. In addition, a surprising trend is that with the development of artificial intelligence, cloud computing, and the digital economy, the demand for the data center market is rising and is expected to achieve extraordinary growth in the next few years.

Criteria for selecting the best real estate stocks

Market cap: >$10 billion

Prioritize investing in large-cap real estate stocks (over $10 billion). Large-cap companies in the real estate industry usually have mature businesses and reliable cash flows and tend to be more stable and less volatile, thus reducing risk.

Financial health: positive revenue growth 

Healthy finances are an essential consideration when investing in a stock. Prioritize investing in companies that have positive year-over-year revenue growth. Positive revenue growth indicates that the company is operating well and has some ability to expand, even in mature industries such as real estate.

Dividend yield: >3%

Prioritize investing in real estate stocks with high dividend yields (>3%). A high dividend yield indicates that the company has strong income-generating capabilities and can provide strong returns to shareholders. The additional high dividends will generate a steady income that will increase your investment returns.

Analyst consensus: buy or better

Analyst consensus can help you identify stocks with strong growth or revenue potential. Prioritize investing in stocks with an analyst consensus of "Buy" or better, as this indicates that analysts are confident in the stock's future performance.

5 best real estate stocks to invest in

Realty Income (O)

Founded in 1969, Realty Income is a large real estate investment trust (REIT). Over the years, Realty Income has been involved in property investments in multiple industries (such as retail, and industrial).

Why does it stand out?

Realty Income's strong financial performance and well record of dividend growth are two main reasons why it stands out.

In 2024, Realty Income reported revenue of $5.271 billion, a year-over-year increase of 29.23%. Realty Income's adjusted funds from operations (AFFO) per share increased by 4.8% to $4.19 per share compared to the previous year, maintaining its growth momentum for 14 consecutive years.

Realty Income also expects AFFO to continue to grow in 2025, rising from $4.19 per share in 2024 to between $4.22 and $4.28 per share.

Realty Income has provided a 5.65% dividend yield, which is in the upper mid-range of its peers. The company also has a strong record of dividend growth, increasing its annual dividend for 30 consecutive years.

Analysts have a consensus rating of "Moderate Buy" for Realty Income, and the average price target of $60.89 implies a 7% upside from current levels. Analysts' bullish reasons include its strong dividend history, diversified portfolio, and growth through acquisitions.

Realty Income is a good choice for investors seeking stable investment income and modest capital appreciation potential.

Extra Space Storage Inc (EXR)

Extra Space Storage is a REIT specializing in self-storage properties. As of 2024, the company owns and/or operates 3,700+ self-storage stores in more than 40 states in the United States.

Why does it stand out?

Extra Space Storage has a good financial profile. Reported revenues for 2024 increased 27.2% YoY to $3.26 billion; gross margins remained stable at about 48.9%.

EXR has a dividend yield of 4.41% and has paid dividends to shareholders every quarter for two decades. This suggests the company has a sustainable dividend policy, which is attractive for income-focused investors.

EXR has a "Moderate Buy" analyst consensus rating and an average price target of $166.25, implying an upside of 12.7% from the current price.

However, EXR is at risk of being overvalued. Its P/E ratio, an important measure of valuation, is 37.1, higher than the industry average and indicating a valuation premium. The EV/EBITDA ratio of 28.62 also indicates a high valuation compared to peers.

If you're attracted to EXR's solid financials and good dividend track record, carefully assess the stock's high valuation risk before you invest.

Prologis (PLD)

Prologis is a leading global real estate company with operations in 19 countries. The company's business is mainly focused on logistics infrastructure and industrial real estate, and it is a major player in both sectors.

Why does it stand out?

In 2024, Prologis' revenue was $8.202 billion, a modest YoY increase of 2.22%. Its earnings per share (EPS) increased from $0.63 at the beginning of the year to $1.37 at the end of the year, highlighting strong earnings growth. Its net profit margin jumped to 58.11% in the fourth quarter of 2024, an increase of 74.01% YoY.

In addition, the company has a solid balance sheet with $7.4 billion in liquidity, which will help its future investment and debt management.

Prologis is also expanding into the data center, a move that could help it benefit from the growing demand for artificial intelligence and data storage, as well as provide it with new revenue streams and drive future growth.

Prologis has paid dividends to shareholders for more than 30 years, with a dividend yield of 3.59%. Prologis' strong dividend track record is supported by solid cash flow from its logistics assets. As global e-commerce continues to grow, the demand for logistics facilities will increase and Prologis is expected to benefit from this trend and generate returns for its shareholders.

The consensus analyst rating for Prologis is "Moderate Buy" in the last 12 months, indicating that most analysts are positive about its prospects. However, Prologis, like EXR, are at risk of high valuations, with a P/E ratio of 21.11, which is higher than the industry average.

Prologis offers an attractive investment opportunity for those seeking exposure to the logistics and industrial real estate industries. However, before you invest, be aware of the high valuation and potential market volatility that could affect the stock.

Digital Realty Trust Inc (DLR)

Digital Realty Trust Inc. (DLR) is a large real estate investment trust (REIT). Its business is mainly focused on data center facilities and provides data center solutions to several countries around the world.

Why does it stand out?

DLR's growth potential makes it stand out. The demand for data centers will continue to grow due to the rise of cloud computing, artificial intelligence, and big data. DLR is a key player in the data center space and it is likely to benefit from this growth trend.

Scotiabank and Bank of America recently upgraded their ratings, highlighting optimism about DLR's growth potential. Analysts have a consensus rating of "Moderate Buy" for DLR, and the average price target is $189.28, which implies an upside of about 25% from current levels. However, due to its growth prospects, DLR is valued at a high level and has a higher P/E ratio than its peers.

DLR reported modest growth in 2024. Revenue increased 2% YoY to $5.56 billion. Core FFO per share increased about 2% to $6.72.

DLR paid a cumulative dividend of $4.88 per share in 2024. DLR has paid dividends for ten consecutive years since 2004, with a dividend yield of 3.23%.

If you're a long-term investor seeking exposure to data center space, DLR's growth potential and a good record of paying dividends make it an attractive option.

VICI Properties (VICI)

VICI Properties Inc. is a REIT focused on investing in gaming, hotels, and leisure facilities. The company's portfolio includes several well-known entertainment properties, such as Caesars Palace in Las Vegas, MGM Grand, and The Venetian Resort in Las Vegas.

Why does it stand out?

VICI has shown good financial performance. In 2024, VICI's total revenue was approximately $3.8 billion and net income attributable to common shareholders was approximately $2.7 billion, both up 6.6% from the previous year. In 2024, VICI paid a dividend of $1.7 per share, with a dividend yield of 5.29%.

Analysts have a consensus rating of "Strong Buy" for VICI, with an average target price of $35.46, which means there is a 16% upside from the current price.

Several analysts have recently raised their target prices for VICI. Barclays noted that the price target was raised due to confidence in VICI's growth prospects. And Wells Fargo points out that VICI has a strong credit tenant base and strong cash flow.

VICI Properties is an attractive investment for those seeking high-yield dividend stocks with growth potential.

Risks and Considerations

There are some risks you must be aware of before investing in real estate stocks.

Interest rate sensitivity

Because real estate stocks and REITs often rely on borrowing, they are highly sensitive to fluctuations in interest rates. When interest rates rise, borrowing costs increase, and real estate development and purchasing activities are prone to negative impacts, which in turn leads to a decline in the profitability of real estate companies.

Currently, the Federal Reserve still maintains interest rates above 4%. If the Federal Reserve has multiple interest rate cuts in 2025 and can lower interest rates to a reasonable level, real estate stocks may grow as a result. Therefore, investing in real estate stocks requires you to keep an eye on the actions of the Federal Reserve.

Economic risks

The real estate industry is highly cyclical and vulnerable to macroeconomic conditions. If there are clear signs of a recession (such as a sharp decline in economic data, weak labor force, etc.), real estate values and rental income may be hit, squeezing the profit margins of real estate companies.

Industry-specific risks

Changes in supply in some market segments may lead to reduced demand and hurt real estate stocks. For example, the growth of e-commerce has led to a decline in demand for retail properties, and companies focusing on retail properties will be hit as a result.

Conclusion

Real estate stocks have long been favored by many conservative investors because of their solid financial positions and high dividend payouts. The high dividend yield of Realty Income, Extra Space Storage, and VICI Properties is a good choice for investors who focus on stable returns.

If you prefer to invest in large-cap stocks, consider Prologis and Digital Realty Trust, both of which are large real estate companies with long operating and dividend histories.

However, investment in real estate stocks also needs to face its interest rate sensitivity and cyclical industry risks. So how do you choose a good real estate stock that meets your needs?

Intellectia, an AI-powered tool, can help you solve this problem. Intellectia is a Chatbot that provides professional financial insights. It will analyze stocks for you according to your needs and give you professional investment opinions. If you haven't used Intellectia yet, I recommend giving it a try.

Frequently asked questions

Does Warren Buffett invest in REITs?

Buffett's Berkshire Hathaway owns a stake in STORE Capital, a real estate investment trust (REIT) focused on single-tenant operated properties.

How long should you hold REITs?

REITs are often viewed as long-term investment options. Generally speaking, investors who typically invest in REITs want to hold them for at least three years, with some of them holding them for 10 years or more.

Do REITs have a lot of debt?

In some cases, REITs use a lot of debt to finance the construction of their properties. However, not all REITs have a lot of debt, depending on their financial structure, financing methods, and the types of real estate in which the trust invests.