A Real Estate Investment Trust is a company that owns income-producing real estate and pays out most of its profits to shareholders

A Real Estate Investment Trust, or REIT, is a business structure that lets you own a piece of real estate without buying property yourself. The REIT buys and manages buildings—apartments, offices, warehouses, shopping centers, hospitals—and collects rent from tenants. Instead of keeping all that rental income, the REIT must distribute at least 90% of its taxable income to shareholders each year. That distribution is how you make money as a REIT investor.

Think of it like owning stock in a company, except the company's business is real estate. You buy shares, the REIT uses your money (and money from other investors) to buy property, and you receive a portion of the rent that comes in. You can buy and sell REIT shares on a stock exchange the same way you would buy regular stock. You do not own the building itself or manage tenants—the REIT does that work.

Key Takeaways

  • REITs own and manage real estate like apartments, offices, and warehouses, and must pay out 90% of taxable income to shareholders each year.
  • You buy REIT shares through a brokerage account just like stock, and you can sell them whenever you want during market hours.
  • REITs are taxed differently than regular stocks—distributions are taxed as ordinary income, not capital gains, which can affect your tax bill.
  • Different REITs focus on different property types: residential, commercial, industrial, or healthcare, so you can choose where your money goes.
  • REITs can be publicly traded (straightforward to buy and sell) or private (harder to access and less liquid), and each type carries different risks.

How REITs make money and pay you

A REIT generates income from rent paid by tenants in the buildings it owns. When an apartment complex collects rent from residents, or an office building collects from companies leasing space, that money flows to the REIT. The REIT pays its operating costs—maintenance, property taxes, insurance, staff salaries—and keeps some profit for reinvestment or reserves. The rest must be distributed to shareholders.

That distribution usually comes as a quarterly or monthly payment to your brokerage account. The amount varies depending on how much rent the REIT collected and how much it spent. Some REITs also grow in value over time, so you might sell your shares for more than you paid, though that is not may provide. The main income stream for most REIT investors is the regular distribution, not price appreciation.

Publicly traded REITs versus private REITs

Publicly traded REITs are listed on stock exchanges like the NYSE or NASDAQ. You can buy and sell shares through any brokerage account during market hours, the same way you would trade any stock. Prices change throughout the day based on what other investors are willing to pay. These are the most common REITs and the easiest to access.

Private REITs are not listed on an exchange. They are sold directly to investors, often through financial advisors or brokers, and you cannot sell your shares whenever you want. Private REITs typically have higher minimum investments and longer holding periods. They are less transparent about their holdings and performance, and it can be difficult or impossible to exit your position quickly. Most individual investors encounter publicly traded REITs first.

Different types of REITs by property focus

REITs specialize in different kinds of real estate. An apartment REIT owns residential buildings. A retail REIT owns shopping centers and malls. An industrial REIT owns warehouses and logistics facilities. A healthcare REIT owns medical office buildings, hospitals, or senior living facilities. A data center REIT owns the buildings that house computer servers. Each type has different income patterns and risks depending on the health of that sector.

Some REITs own a mix of property types, while others focus on one. The property type matters because it affects how stable the income is. For example, apartment REITs tend to have steady, predictable rent because people always need housing. Retail REITs have faced more pressure in recent years as shopping habits change. Knowing what a REIT owns helps you understand what you are investing in and whether that sector fits your goals.

How REIT distributions are taxed

REIT distributions are taxed as ordinary income, not as capital gains. That means they are taxed at your regular income tax rate, which is usually higher than the long-term capital gains rate. If you hold a REIT in a regular taxable brokerage account, you will owe taxes on distributions every year, even if you reinvest them. This is different from holding a stock that pays dividends, which may may have access to for lower capital gains rates.

If you hold REITs in a tax-advantaged account like an IRA or 401(k), you do not pay taxes on distributions until you withdraw money from the account. Many investors keep REITs in retirement accounts for this reason. In a taxable account, REITs can generate a larger annual tax bill than other investments, so it is worth planning for that before you buy.

Risks and benefits of REIT investing

REITs offer diversification—you own a piece of many properties across different locations and property types without buying real estate directly. They also offer liquidity if you choose publicly traded REITs; you can sell your shares in minutes if you need cash. REITs also tend to pay higher distributions than many other stocks, which appeals to income-focused investors.

The main risks are that REIT share prices can fall if interest rates rise (because investors can get better returns elsewhere) or if the real estate market weakens. Specific risks depend on the property type: retail REITs face pressure from e-commerce, apartment REITs can be affected by rent control laws, and healthcare REITs depend on government reimbursement rates. Like any stock, a REIT can underperform or fail. Past performance does not predict future results.

How to buy REIT shares

To buy a publicly traded REIT, you need a brokerage account with a bank or investment firm. Open the account, fund it with cash, and search for the REIT by its ticker symbol. Place an order to buy shares just as you would for any stock. The transaction settles in two business days, and the shares appear in your account. You can then hold them, sell them, or reinvest distributions.

Private REITs require a different process. You typically work with a financial advisor or broker who offers them, meet minimum investment requirements (often $25,000 or higher), and sign additional paperwork. Private REITs may have lock-up periods where you cannot sell for several years. Most new REIT investors start with publicly traded REITs because they are simpler to buy and sell.

Frequently Asked Questions

Do I actually own the building if I own REIT shares?

No. You own a share of the REIT company, not the building itself. The REIT owns the building and manages it. You receive a portion of the income the building generates, but you have no say in day-to-day operations and cannot visit or use the property.

Can REIT share prices go down?

Yes. REIT share prices fluctuate based on market conditions, interest rates, and investor demand. If interest rates rise, REIT prices often fall because investors can earn better returns elsewhere. A REIT can also decline if its properties underperform or if the real estate sector weakens.

What is the difference between a REIT and a real estate mutual fund?

A REIT is a company that owns and operates real estate directly. A real estate mutual fund is a fund that invests in multiple REITs or real estate companies. Mutual funds offer more diversification across many REITs, while a single REIT gives you exposure to one company's properties.

Do I need a lot of money to start investing in REITs?

No. Publicly traded REITs trade in shares, so you can buy one share or many depending on the price. Some REIT shares cost under $50. Private REITs typically require much larger minimum investments, often $25,000 or more.

Can I lose money investing in a REIT?

Yes. REIT share prices can fall, and you could sell for less than you paid. The REIT could also cut or eliminate distributions if its properties stop generating income. Like any investment, there is no may provide of returns.