Real estate securities give you a way to tap into property income without actually buying buildings or land. If you know your way around the markets, you’ll find all sorts of options: public REITs, closed-end funds, real estate ETFs, mortgage-backed securities, and other complex products tied to commercial property.

Each of these works differently—they vary in how easily you can buy or sell them, how steady the payouts are, how they react when interest rates shift, and who’s actually backing your investment. Before you put your money into any of them, make sure you understand these differences so you’re not surprised down the line.

This article describes the main instruments, the technical drivers of value, the derivative tools that traders use to express views, and practical guidance for selecting a broker. The goal is practical: explain what you are buying, how prices behave, what derivative overlays can do, and how to choose a custody and execution provider that supports your strategy.

Types of real estate securities

When you want real estate exposure in public markets, you’re usually looking at two main groups: one tied to owning the property (equity), and the other linked to lending money on it (debt).

On the equity side, the most common choice is REITs—real estate investment trusts. These companies either own or finance properties that make money, like apartments, offices, warehouses, or even cell towers and data centers. By law, REITs have to pay out most of what they earn as dividends, making them popular with income-focused investors. The flavor of REIT you pick matters: apartments, offices, retail, and specialized REITs each react differently to shifts in the economy, rent trends, and tenant needs. You can buy and sell REIT shares on regular stock exchanges, and their prices move with both the property market and the ups and downs of the stock market.

Closed-end real estate funds and business development companies sometimes cross paths with REITs, but they play by their own rules when it comes to payouts and how much they can borrow. If you want to spread your bets, real estate ETFs let you own a mix of REITs or related stocks, and you can buy or sell them anytime the stock market’s open. For most folks, ETFs are a quick, simple way to cover a whole chunk of the real estate market.

On the debt side, things get more layered. Here, you’ll find agency mortgage-backed securities (MBS), private or “non-agency” MBS, collateralized mortgage obligations (CMOs), and commercial mortgage-backed securities (CMBS). Agency MBS come with a government guarantee, which makes them safer and easier to trade than private-label mortgage bonds. CMBS, meanwhile, are bundles of commercial property loans sliced into pieces (called tranches) with different levels of risk and return. These structured products pay out based on who gets first dibs on cash flow and who’s stuck if losses pile up, so their yields and risks can swing quite a bit.

In short: if you want to put money into real estate through public markets, you’ve got options. But every type, equity or debt, comes with its own risks, rewards, and quirks.

Mortgage REITs operate as hybrid instruments. Equity mortgage REITs buy mortgages or MBS, fund those assets with leverage and pay income as dividends. Their returns come from net interest spread and from leverage. They are highly sensitive to funding costs and prepayment dynamics.

You’ll also come across private real estate deals—like notes tied to a single project or the chance to buy a small piece of a big institutional fund. These investments are usually much harder to sell quickly (illiquid), and you’ll often need to meet certain requirements or invest a decent chunk of money just to get in.

Technical mechanics: pricing, yield, duration, credit and prepayment risk

Pricing real estate securities requires understanding both cash flow drivers and interest rate mechanics. For equities price is a function of expected dividend stream and growth assumptions; for debt price is discounted expected principal and interest payments subject to credit and prepayment risk.

Yield measures vary by instrument. For REITs and ETFs common reported metrics include trailing yield and forward yield based on expected dividends. For fixed income instruments yield to maturity and yield to worst are standard. For mortgage products option adjusted spread adjusts for embedded prepayment options and is useful when comparing MBS to Treasury yields.

Interest rate moves matter—a lot. Duration is just a fancy way to measure how much a bond’s price is likely to change when rates go up or down. REITs (the real estate stocks) don’t have a set duration like bonds do, but their prices often drop when interest rates rise. Why? Because higher rates mean future dividends are worth less, and property values can fall as cap rates climb.

Mortgage-backed debt acts differently from regular bonds because homeowners can pay off their loans early (prepay), especially when rates drop. When rates fall, people rush to refinance, so those bonds get paid back faster and their prices can’t rise as much. But if rates go up, fewer people pay off early, the bond’s life stretches out, and prices can drop more than you might expect. This oddball behavior is called negative convexity, and it makes mortgage-backed securities react very differently from standard bonds.

Credit and liquidity premium matter for non agency products. Private label RMBS and CMBS tranche spreads over benchmark rates compensate investors for expected credit losses and for illiquidity. In stress events these spreads widen, sometimes dramatically, creating mark to market losses that may recover or not depending on the borrower performance.

Funding and leverage amplify risk for mortgage REITs and for funds that use repo financing. Changes in short term funding rates increase financing cost, squeezing the net interest margin. Repos and other secured financing can be recalled, forcing asset sales into illiquid markets. That adds a distinct counterparty and liquidity layer to what might otherwise look like a pure yield trade.

Prepayment modeling is technical but essential for mortgage products. Prepayment rates depend on refinancing incentives, turnover and borrower credit dynamics. Models use empirical speeds, such as PSA factors for residential pools, and map expected principal return outflows into projected cash flows. Securities with significant prepayment risk often trade with embedded option costs that must be considered when making relative value decisions.

Credit curve and spread decomposition provide a framework for valuation. For corporate and commercial mortgage exposures decomposing yield into a risk free component, a credit spread and an illiquidity premium helps compare instruments. Relative value trades often rest on expectations about spread contraction or expansion, not solely on yield pickup.

Finally, correlation matters. Equity REITs can correlate with broader equities, while mortgage and commercial mortgage securities correlate more with credit and real estate cycles. Correlations change over time, especially under stress, so portfolio concentration must consider cross instrument correlation and tail scenarios.

Derivatives and market tools

Derivatives are widely used by traders and portfolio managers to express views with leverage, or to hedge exposures. Options on REIT stocks and on real estate ETFs are liquid in many names and permit strategies from covered calls to protective puts. Options expose traders to Greeks such as delta, vega and theta. For income oriented strategies covered calls generate premium, but reduce upside; protective puts provide a synthetic floor but cost premium. Implied volatility on REIT names often reflects the sector specific risks and can be a useful signal for entry and exit.

Futures are not common for single REITs but exist on broader equity indexes and on certain ETFs. Stock index futures can be used to hedge correlated equity risk. For fixed income exposures interest rate futures and Treasury futures are core hedging tools for duration management.

Swaps play a role at institutional scale. Total return swaps and credit default swaps allow exposure to cash returns or credit risk without physical settlement. Interest rate swaps help manage the funding and rate risk that affects mortgage exposures. Swap markets provide flexible, bespoke hedges but require counterparties and credit support.

The mortgage market has its own derivative instruments. To be announced contracts are a primary tool for trading agency MBS exposure. TBA trading abstracts pool specifics and is the standard way to hedge or take position on mortgage coupon flows before specific pools are delivered. In structured credit markets tranche level trading uses cash flows and credit derivatives to isolate risk. Securities such as IO and PO strips isolate interest only and principal only flows and have extreme sensitivity to prepayment rates; IOs lose value when prepayments accelerate, while POs benefit.

Options on MBS are also used, and option adjusted spread analysis is a common valuation framework that attempts to remove the pricing effects of embedded optionality. Hedging these options requires a combination of Treasury futures, swaps and MBS futures as the underlying exposures have multiple risk drivers.

Operationally traders need to understand settlement conventions, netting, and margin for derivatives. Options and futures require margin and daily variation payments. For complex mortgage derivatives collateral calls can occur quickly during spread widening events. The operational friction of posting collateral and rolling positions is a frequent source of realized loss especially for leveraged positions.

Selecting a broker for real estate securities and derivatives

Broker selection matters more in this sector than for plain vanilla equity trading. You need access to the specific markets you intend to trade, and the broker must support the instruments operationally and legally.

First verify market coverage. Many retail brokers provide access to REIT equities ETFs and options. Fewer provide access to agency MBS and private label MBS retail offerings. If you plan to trade mortgage securities directly check whether the broker offers a fixed income platform with a bond desk that can source agency TBAs and trading in CMBS tranches. Institutional platforms or brokers with a dedicated fixed income desk will typically offer deeper access.

Execution quality and liquidity routing affect realized price. For equities and ETFs compare reported execution metrics, average spread captured and order routing transparency. For options, check option level liquidity and the broker s order handling practices. For fixed income look for access to inter dealer markets or a dealer network that can provide competitive pricing.

Margin and financing terms are crucial. If you intend to use leverage review margin rates, maintenance requirements and specific rules for options and futures. Mortgage REIT strategies that use repo like financing require access to secured funding and clear disclosure of haircut and recall policies. Margin for derivatives can change intraday and in stress, so understand potential margin spikes.

Platform functionality matters. Fixed income trading often requires different screens, depth of book data and document flow. If the broker offers a research suite, check for specialty research on property markets and structured products. Some brokers provide third party research on REIT fundamentals, broker research and data on prepayment speeds. For derivatives confirm the availability of Greeks, scenario analysis and risk reporting.

Regulatory protections and custody are non negotiable. Choose brokers that are members of appropriate regulatory schemes and that segregate client assets. SIPC coverage in the U.S. protects against broker failure up to limits for brokerage assets but not against market losses. For derivatives and OTC exposures counterparty risk becomes material so prefer regulated counterparties and clear margining rules.

Customer service and operational support deserve attention. Settlement issues, documentation for tax reporting and the ability to negotiate block trades or odd lot executions hinge on broker responsiveness. If you trade private placements verify the broker s ability to handle subscription documents and accredited investor checks.

Cost structure should be explicit and compared on a total cost basis. Commission free equity trading can hide costs in spreads and routing. For fixed income and structured products commissions and mark ups are common. For options and futures check contract fees, exchange fees and clearing fees. Also confirm withdrawal rules and whether the broker enforces withholding or holds funds during settlement.

Finally check international access and currency handling if you plan to trade foreign listed REITs or cross border structured products. Different tax regimes and withholding rules can affect net yield materially.

The easiest way to compare brokers to find a good broker that suits you is to use BrokerListings. BrokerListings.com it’s a website completely dedicated to reviewing brokers and making it as easy as possible to compare different brokers to find the one that suits you the best.

Portfolio construction, risk management and tax considerations

Constructing a portfolio with real estate securities requires attention to diversification across property types, capital structure and interest rate exposure. Equity REITs provide operational leverage to property cash flows and can offer growth via rent resets and development. Debt exposures provide more fixed income like returns but are subject to credit and prepayment dynamics. Combining both can smooth returns but introduces complex correlations.

Risk management includes explicit limits on concentration, duration targets for debt allocations and stress testing for spread widening scenarios. For mortgage linked products scenario analysis for prepayment speeds and rate paths is essential. Use stress cases that reflect both rate moves and credit deterioration simultaneously.

Liquidity planning is necessary. Many structured products are less liquid than REIT stocks. If you hold positions that are difficult to exit quickly maintain a cash buffer and avoid relying on intraday conversion to cash for obligations.

Tax treatment varies. REIT dividends are often treated as ordinary income for tax purposes though part may be return of capital. MBS interest is generally taxable as ordinary income unless held in tax advantaged accounts. Some REIT dividends may qualify for certain deductions depending on jurisdiction and individual circumstances. Tax lots, wash sale rules for loss harvesting and the timing of taxable events from derivatives must be accounted for. Consult a tax professional for specifics, but plan for tax reserve on realized gains.

Finally, real estate exposures can serve as an inflation hedge when property rents adjust with inflation. However the degree of hedge depends on lease structures, tenant covenants and regional supply conditions. Do not assume automatic protection.