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A REIT (Real Estate Investment Trust) is a company that owns and operates income-producing real estate: apartment buildings, office towers, malls, hospitals, warehouses, cell towers, even data centers. By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends.
How you actually own one
Public REITs trade on stock exchanges just like any stock. You can buy a share of Realty Income or Prologis through any standard brokerage. There are also REIT ETFs that own dozens of REITs at once.
Private and non-traded REITs are different. They do not trade publicly, often charge higher fees, lock up your money, and can be hard to value. Beginners should generally stick to publicly traded REITs and REIT ETFs.
Why people own them
- Income: dividend yields are typically higher than the broad stock market.
- Real estate exposure without becoming a landlord.
- Diversification: REITs do not always move in sync with the broader stock market.
Risks
- REITs are sensitive to interest rates. When rates rise, REIT prices often fall.
- Some sectors (offices, malls) face structural pressure from remote work and e-commerce.
- REIT dividends are usually taxed as ordinary income, not at the preferential qualified-dividend rate.
Because REIT dividends are usually taxed at ordinary income rates, REITs often work better held inside an IRA or 401(k) than in a regular brokerage account.
What this lesson is NOT
This explains what a REIT is, why people own them, and the real risks, including that non-traded REITs can charge high fees and be hard to sell. It is not a recommendation to own one, and it does not cover how REIT income is taxed, which is its own topic.
Quick check on this lesson
Answer each question and we’ll show you why the right answer is right, and why the others aren’t.
- 1.
What is a REIT?
- 2.
Where are REITs often BEST held for tax efficiency?
- 3.
What major risk factor do REITs share?
0 of 3 answered