A REIT is a company that owns and operates income-producing real estate, and you can buy shares in it like a stock
REIT stands for Real Estate Investment Trust. It is a corporation that buys, owns, and manages properties — office buildings, apartments, shopping centers, warehouses, hotels — and distributes the income from those properties to people who own shares. You do not own the building itself. You own a piece of the company that owns the building, and you receive a portion of the rent and other money the company collects.
REITs exist because of a federal rule: if a company owns real estate and distributes at least 90 percent of its taxable income to shareholders each year, it does not pay corporate income tax. That structure makes REITs different from other real estate companies. The trade-off is that REITs must be publicly traded (or meet other strict requirements), and they must own income-producing property — not land held for speculation or homes built for sale.
You buy REIT shares through a brokerage account, the same way you buy stock in Apple or Microsoft. The share price moves up and down based on what investors think the company is worth. You also receive distributions — payments from the rent and other income the REIT collects — usually quarterly or annually.
Key Takeaways
- A REIT is a company that owns real estate and distributes most of its income to shareholders; you buy shares like stock, not property directly.
- REITs must own income-producing properties such as apartments, offices, or shopping centers, and must distribute at least 90 percent of taxable income to shareholders.
- REIT shares trade on stock exchanges and their price fluctuates; you also receive regular distributions from the rent and other income the properties generate.
- Different REITs focus on different property types — residential, commercial, industrial, healthcare — so your returns depend on which sector performs well.
- REITs offer liquidity (you can sell shares quickly) and lower entry cost than buying property outright, but you have no control over which properties the company buys or how it manages them.
How a REIT makes money and pays you
A REIT collects rent from tenants and other income from the properties it owns. After paying operating costs — maintenance, property taxes, insurance, staff — the company distributes the remaining income to shareholders. That distribution is where your return comes from. The amount varies depending on how full the buildings are, how much rent the REIT can charge, and how efficiently it manages costs.
You also make money if the REIT's share price rises. If you buy shares at $50 and sell them at $60, you keep the $10 gain. But the main draw of REITs is the distribution income, which tends to be higher than dividends from regular stocks. Many REITs distribute 3 to 6 percent of the share price annually, though this varies widely by company and property type.
The distributions are taxed as ordinary income, not as capital gains, which is a disadvantage compared to some other investments. You pay tax on the distribution in the year you receive it, even if you reinvest the money.
Different types of REITs and what they own
REITs specialize in different kinds of property. An apartment REIT owns residential buildings. An office REIT owns commercial office space. An industrial REIT owns warehouses and distribution centers. A retail REIT owns shopping centers and malls. A healthcare REIT owns hospitals, medical offices, and senior living facilities. A hotel REIT owns lodging properties.
Some REITs own a mix of property types; others focus narrowly on one. Your return depends partly on which sector performs well. During the pandemic, for example, office REITs struggled because companies moved to remote work, while industrial REITs thrived because e-commerce warehouses were in high demand. Apartment REITs held up relatively well because people still needed housing.
You can also buy a REIT index fund or mutual fund that holds shares in many different REITs across multiple sectors. That approach spreads your risk across property types and companies.
Advantages of investing in REITs instead of buying property
REITs offer liquidity. You can sell your shares in minutes during market hours. If you own a rental property, selling takes months and involves real estate agents, inspections, and closing costs. With a REIT, you log into your brokerage account and sell.
REITs require much less capital to start. Buying a rental property typically means a down payment of 15 to 25 percent of the purchase price, plus closing costs. You might need $50,000 to $100,000 or more. A REIT share might cost $50 to $200, so you can start with a few hundred dollars.
REITs handle all the management. You do not fix toilets, evict tenants, or negotiate with contractors. The REIT's professional staff does that. You receive distributions without the work.
REITs are transparent. They file regular reports with the Securities and Exchange Commission (SEC) and disclose their properties, occupancy rates, debt, and financial performance. You can research a REIT thoroughly before you invest.
Disadvantages and risks of REIT investing
You have no control. When you own a rental property, you decide which tenants to accept, how much rent to charge, and when to sell. With a REIT, the board of directors and management make those decisions. If you disagree with their strategy, your only option is to sell your shares.
REIT share prices are volatile. They move with stock market sentiment, interest rates, and economic conditions. A REIT share might drop 20 or 30 percent in a year, even if the underlying properties are performing well. If you need the money soon, you might have to sell at a loss.
Interest rate risk is real. When the Federal Reserve raises interest rates, borrowing becomes more expensive. REITs often use debt to buy properties, so higher rates cut into profits and make REIT shares less attractive compared to bonds. Rising rates typically push REIT prices down.
Distributions are taxed as ordinary income, not capital gains. That means you pay your full income tax rate on distributions, which can be 22 to 37 percent or higher depending on your income. With a rental property, you can deduct expenses and depreciation, reducing your taxable income.
How REITs are regulated and what that means for you
REITs are regulated by the SEC as securities. That means the company must file quarterly and annual reports, disclose material risks, and follow rules about how it raises money and communicates with investors. Those rules protect you from fraud and hidden problems.
The Internal Revenue Service (IRS) sets strict rules about what a REIT can own and how much income it must distribute. A REIT must own at least 75 percent of its assets in real estate and derive at least 75 percent of its income from real estate. It must distribute at least 90 percent of taxable income to shareholders. If a REIT breaks these rules, it loses its REIT status and becomes a regular corporation, which changes the tax treatment and can hurt share prices.
Your shares are protected by the same rules that protect all stock investors. If the REIT goes bankrupt, creditors are paid first, and shareholders are last. You could lose your entire investment. That is why researching the REIT's debt level and financial health matters.
REIT shares versus owning property directly
| Factor | REIT Shares | Rental Property |
|---|---|---|
| Initial cost | $50–$500 per share | $50,000–$500,000+ down payment |
| Liquidity | Sell in minutes during market hours | Sell in weeks or months |
| Control | None; board decides strategy | Full control over property and tenants |
| Management work | None; REIT staff handles it | You manage or hire a property manager |
| Tax deductions | Limited; distributions taxed as ordinary income | Deduct expenses, depreciation, mortgage interest |
| Price volatility | High; moves with stock market | Lower; depends on local market |
| Leverage | Limited; you buy shares with cash | Use mortgage to control large asset with small down payment |
Frequently Asked Questions
Do I need a lot of money to invest in a REIT?
No. You can buy a single REIT share for $50 to $200 through a brokerage account. Many people start with a few hundred dollars. If you want broader exposure, you can buy a REIT mutual fund or exchange-traded fund (ETF) with a smaller initial investment.
Are REIT distributions may provide?
No. Distributions depend on the income the REIT collects from its properties. If occupancy drops, tenants do not pay rent, or operating costs rise, distributions can fall or stop. The REIT is not required to maintain a certain distribution level.
Can I lose money investing in a REIT?
Yes. REIT share prices fluctuate based on market conditions and investor sentiment. You could sell your shares for less than you paid. You could also lose money if the REIT goes bankrupt, though that is rare for large, established REITs.
How are REIT distributions taxed?
Distributions are taxed as ordinary income at your full tax rate, which can be 10 to 37 percent depending on your income. Some distributions may be classified as return of capital or capital gains, which are taxed differently, but most are ordinary income. Hold REITs in a tax-advantaged account like an IRA if possible.
What is the difference between a publicly traded REIT and a non-traded REIT?
A publicly traded REIT's shares trade on a stock exchange and you can buy or sell anytime. A non-traded REIT is sold through brokers and financial advisors but does not trade on an exchange, so you cannot easily sell. Non-traded REITs often have higher fees and less transparency. Most individual investors should stick with publicly traded REITs.