REIT.
In plain English
A REIT (Real Estate Investment Trust) is a company that owns and often operates income-producing real estate (apartments, malls, offices, warehouses, cell towers, data centers). To qualify as a REIT under U.S. tax law, the company must distribute at least 90% of its taxable income to shareholders as dividends. In exchange, the REIT pays no corporate income tax. REITs trade on stock exchanges like any other stock, giving small investors access to commercial real estate without the hassle of direct ownership.
01Why it matters
REITs are how individual investors access institutional-grade real estate at the click of a button. Their high required payouts mean dividends are usually their main return component, often 3% to 6% yields. Tax-wise, REIT dividends are typically ordinary income (not qualified dividend rates), which makes IRAs and 401(k)s the natural homes for them. In a taxable account, REIT yield is partially eaten by ordinary tax rates.
02The math, step by step
Realty Income (ticker O) is a large net-lease REIT owning over 15,000 properties in the U.S. and Europe. It has paid a monthly dividend for over 50 consecutive years, currently around 5%. A $10,000 investment generates about $500 a year in income, paid monthly, plus any price appreciation.
03What this is NOT
Owning a rental property gives you direct control, depreciation deductions, and 1031 exchange access. Owning a REIT gives you instant diversification, professional management, and no plumbing calls at 2 a.m. Both are real estate exposure; the operating headaches and tax treatment differ.
04Receipts
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