ETFs tracking real estate investment trusts such as the Vanguard REIT Index (VNQ) are a way for investors to participate in the recovering economy and property market, while earning some income. REITs tend to diversify better than an average real estate ETF.

“Although REITs offer relatively attractive yields, they are still equities and are not a higher-yielding alternative to low-risk investments such as Treasuries. Over the past three years, REITs have been slightly more volatile than the S&P 500. Potential near-term risks include slower-than-projected growth, setbacks in the U.S. economy (REITs are strongly correlated to the U.S. equity market), and rising interest rates,” Abby Woodham wrote for Morningstar. [Vanguard REIT ETF Yielding Over 3% Beating the S&P 500]

REITs are a hybrid asset class as they offer capital appreciation along with yield. The companies are focused on property management, and rents, so the income is derived from collecting the rents. About 90% of taxable income is passed on to shareholders. REITs are a liquid way to invest in real estate, especially commercial property, while avoiding all of the drama of owning the actual property, reports Woodham. [Yield, Outperformance Attract Investors to Real Estate ETFs]

The REIT ETFs that can sustain and grow their dividend payouts while keeping dependence on capital markets low are going to be the most successful. The yield on most REIT ETFs has been more rewarding than U.S. Treasuries and U.S. equities, drawing much attention to this asset class. Many real estate ETFs are a indirect play on the retail sector, whereas a REIT ETF invests only in the properties.

VNQ is a strong basket of 10 stocks that focus on office buildings, hotels and other domestic companies. The 0.10% expesne ratio is competitive with other ETFs in this asset class and the $32 billion in assets under management ensure there is enough liquidity in the fund. The 3.35% yield is still higher than U.S. Treasuries, reports Zacks. [Steady Diet of Real Estate ETFs Can Help Boost Yield]

The iShares FTSE NAREIT Mortgage Capped Plus Index Fund (REM) focuses in on residential and commercial property that take on assets in excess of $1 billion. The mix of stable mortgages and lower interest rates is necessary for this fund to remain successful. The ETF has recouped most of the lost assets that entailed after the housing bubble burst in 2008. The 11.67% yield of this fund makes it higher risk, and the $1.1 billion invested is proof that investors are upbeat on the real estate sector.

The SPDR Dow Jones Wilshire REIT ETF (RWR) is a fund for investors who want exposure to commercial real estate rather than residential. The focus is on strip malls, apartment buildings, healthcare buildings and office space. The 0.25% expense ratio makes this an affordable alternative to access commercial property, while the 2.66% yield is decent. There is over $2 billion in assets under management.