What is a real estate investment trust (REIT)?

A real estate investment trust (REIT) is correctly defined as a company that owns, operates, or finances income-producing real estate. These companies invest in various types of real estate properties, such as residential apartments, commercial buildings, or specialized facilities like shopping centers or hospitals. By pooling the capital of numerous investors, REITs allow individual investors to earn a share of the income produced through real estate investments without having to buy or manage properties directly.

The structure of a REIT typically allows it to receive favorable tax treatment, provided it adheres to specific regulatory requirements, such as distributing at least 90% of its taxable income to shareholders in the form of dividends. This structure not only provides investors with a reliable income stream but also makes real estate investment accessible to a broader audience who may not have the necessary capital to invest in real estate directly.

Understanding the function and benefits of REITs is important for anyone interested in real estate investing, as they represent a crucial mechanism through which individuals can diversify their investment portfolios and gain exposure to the real estate sector.