What Is a REIT?
A real estate investment trust is a company that owns or finances income-producing real estate and pays out most of its taxable income to shareholders. How REITs work, their types, and the risks.
In one sentence
REIT. A real estate investment trust: a company that owns, and usually operates, income-producing real estate or related assets such as mortgages. To keep its special tax status, it must pay out at least 90% of its taxable income as dividends each year.
How it works
Congress created REITs in 1960 so that individual investors could invest in large-scale, income-producing real estate.1 REITs own or finance properties such as apartment buildings, warehouses, and offices. Buying a REIT's shares gives you a slice of those properties' rent without buying or managing a building yourself.
REITs must pay out most of their taxable income to keep their tax status, so they tend to pay high distributions.1
| Share price | $40 |
|---|---|
| Yearly distribution | $2.00 a share |
| Yield | 5.0% |
| Your 250 shares, $10,000 | About $500 a year |
Because so much is paid out, a REIT that wants to grow often has to borrow or issue new shares, which ties it closely to interest rates.
Types and risks
- Publicly traded REITs trade on stock exchanges like any share.
- Non-traded REITs don't, which can make them hard to sell and harder to value.
- Interest rates matter: rising rates raise REITs' borrowing costs and make their payouts look less attractive next to bonds.
Learn it properly
- REITsPart 2: What You Can Own · Free
Notes and sources
- U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy. Investor Bulletin: Real Estate Investment Trusts (REITs). Checked 2026-10-11. Back to text