A REIT is a company that owns and operates income-producing real estate

A REIT (Real Estate Investment Trust) is a business that buys, owns, and manages properties — apartments, office buildings, shopping centers, warehouses, hotels — and distributes the rental income to people who own shares in it. You buy shares the same way you buy stock in any other company, through a brokerage account. Instead of the REIT keeping all the rent money, federal law requires it to pay out at least 90 percent of its taxable income to shareholders as dividends.

The core idea is straightforward: REITs let you own a piece of real estate without buying a building yourself, without managing tenants, and without needing hundreds of thousands of dollars upfront. A single REIT might own dozens or hundreds of properties across different states or property types, so your investment is spread across many buildings and locations.

Key Takeaways

  • REITs are companies that own real estate and must distribute at least 90 percent of taxable income to shareholders as dividends.
  • You buy and sell REIT shares through a regular brokerage account, the same way you trade stocks.
  • REITs focus on different property types — apartments, offices, warehouses, malls, data centers — so you can choose where your money goes.
  • REIT dividends are taxed as ordinary income, not at the lower capital gains rate, which affects how much you keep after taxes.
  • REITs trade during market hours and their share price moves with investor demand, so the value of your investment can go up or down daily.

How REIT dividends work and what you actually receive

When a REIT collects rent from its tenants, it uses that money to pay operating costs, property maintenance, debt payments, and management salaries. The remainder — at least 90 percent of taxable income — goes to shareholders as dividends. If a REIT owns 100 apartment buildings and you own 0.001 percent of the company, you receive 0.001 percent of those dividends.

Dividends are usually paid quarterly, and the amount per share varies depending on how much income the REIT generated that quarter. Some REITs pay higher dividends than others; a REIT that owns prime office space in a major city might generate more income per share than one that owns smaller retail properties in rural areas. You receive the dividend in cash into your brokerage account, and you can reinvest it, spend it, or hold it.

The catch is that REIT dividends are taxed as ordinary income — the same rate as your salary — rather than at the lower capital gains rate that applies to stock dividends. This matters significantly if you hold REITs in a taxable account. If you hold them in a retirement account like an IRA or 401(k), the tax treatment inside that account is the same as any other investment.

The difference between public REITs, private REITs, and non-traded REITs

Public REITs trade on stock exchanges (NASDAQ, NYSE) during regular market hours, just like any other stock. You can buy or sell shares when ready at the current market price, and the price changes throughout the day based on what investors are willing to pay. Most individual investors encounter public REITs because they are straightforward to buy and sell, and the information is transparent.

Private REITs are not listed on any exchange. They are owned by a smaller group of investors and are harder to buy into; you typically need to be an accredited investor (high net worth or high income) and go through the REIT sponsor directly. You cannot sell your shares on a public market, so your money is locked in until the REIT decides to sell properties or dissolve.

Non-traded REITs sit in the middle. They are registered with the SEC but do not trade on an exchange. They are sold through financial advisors or brokers, often with high upfront fees (sometimes 10 percent or more of your investment). You can eventually sell your shares back to the REIT, but there is usually a waiting period and limited liquidity. Non-traded REITs are less common for individual investors because of the fees and complexity.

What types of properties REITs own and how that affects your returns

REITs specialize in different property categories, and the type of property affects both the income and the risk. Residential REITs own apartments and single-family rental homes; they tend to be stable because people always need housing, but returns are often modest. Office REITs own commercial office buildings; they have faced pressure in recent years as remote work reduced demand for office space. Retail REITs own shopping centers and malls; they depend on foot traffic and tenant sales, which fluctuate with the economy.

Industrial REITs own warehouses and distribution centers; they have performed well because e-commerce requires massive logistics networks. Healthcare REITs own medical offices, hospitals, and senior living facilities; they benefit from an aging population but are sensitive to changes in healthcare policy. Data center REITs own the buildings that house servers and networking equipment; they have grown as cloud computing and AI demand more computing power.

A REIT focused on one property type carries more risk if that sector struggles — office REITs suffered when remote work took hold. A diversified REIT that owns multiple property types spreads that risk. When you choose a REIT, look at what properties it owns and whether you think that sector will generate steady income.

How REIT share prices move and what affects them

The share price of a public REIT is determined by supply and demand, just like any stock. If investors think a REIT will generate strong dividends and grow, they buy shares, pushing the price up. If they worry about rising interest rates, economic slowdown, or problems in that property sector, they sell, pushing the price down. The share price and the dividend are separate — you can own a REIT whose share price falls but whose dividend remains steady, or vice versa.

Interest rates have a large effect on REIT prices. REITs borrow money to buy properties, so when interest rates rise, their borrowing costs increase, which reduces the income available for dividends. Higher rates also make bonds and savings accounts more attractive relative to REIT dividends, so investors shift money away from REITs. The reverse happens when rates fall.

Economic conditions matter too. If unemployment rises and people move less, residential REITs may see higher vacancy rates. If retail sales decline, retail REITs struggle. If companies downsize their office space, office REITs suffer. The specific property type and the quality of the REIT's properties and management determine how much it is affected by these changes.

Comparing REITs to owning rental property directly

Owning a rental house or apartment building gives you direct control: you choose the property, set the rent, manage the tenants, and keep all the income after expenses. You can also use leverage — borrow money to buy a property worth more than you have in cash. The downside is that you need significant capital upfront, you handle all the management headaches, and your investment is concentrated in one or a few properties in one location.

A REIT requires no management work and spreads your investment across many properties and locations. You can start with as little as the price of one share. The trade-off is that you do not control the properties or the decisions the REIT makes, and you pay the REIT's management fees. You also cannot use leverage the way you can with a direct property purchase — you buy REIT shares with cash, not borrowed money.

For most people, REITs are more practical than direct property ownership because they require less capital, less time, and less informed. Direct property ownership makes sense if you have substantial savings, want to be hands-on, and plan to hold for many years. Many investors do both: own one or two rental properties and also hold REIT shares for diversification.

Risks to understand before investing in REITs

REIT share prices fluctuate with market conditions and investor sentiment, so you can lose money if you sell when the price is down. Interest rate increases hurt REIT valuations because borrowing becomes more expensive and bonds become more attractive. Economic recessions reduce occupancy rates and rental income across most property types. A specific REIT can also underperform if its properties are in weak markets, if management makes poor decisions, or if the property type it focuses on falls out of favor.

REITs are also less liquid than large-cap stocks — some REITs have lower trading volume, which means you might not be able to sell a large position quickly without affecting the price. Non-traded REITs are even less liquid; you may wait months or years to sell your shares. Finally, because REIT dividends are taxed as ordinary income, they are less tax-efficient than stock dividends in taxable accounts, which can significantly reduce your after-tax returns.

Frequently Asked Questions

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

No. Public REITs trade as individual shares, so you can buy one share for the current market price — anywhere from $20 to $200 per share depending on the REIT. You can also buy fractional shares through most brokerages, so you can invest any amount. Private and non-traded REITs typically require much larger minimums, often $25,000 or more.

Are REIT dividends paid monthly or quarterly?

Most REITs pay dividends quarterly, though some pay monthly or semi-annually. Check the REIT's investor relations page or your brokerage statement to see the payment schedule. The frequency does not affect the total annual dividend — a REIT that pays $4 annually might pay $1 quarterly or roughly $0.33 monthly.

Can I hold REITs in a retirement account?

Yes. You can hold public REITs in an IRA, 401(k), or other retirement account. Inside a retirement account, REIT dividends are not taxed when ready, which makes them more tax-efficient than holding them in a regular taxable brokerage account. This is one reason many investors prefer to hold REITs in retirement accounts.

What happens to my REIT shares if the company goes bankrupt?

If a REIT files for bankruptcy, shareholders are last in line — creditors and bondholders are paid first. You could lose some or all of your investment. This is rare for large, established REITs, but it is a real risk with smaller or struggling REITs. Diversifying across multiple REITs reduces this risk.

How do I choose between different REITs?

Look at the property types the REIT owns, its dividend yield, its occupancy rate, and the quality of its management. Compare the dividend yield to other REITs in the same sector — a much higher yield might signal financial stress. Read the annual report to understand the REIT's debt level and strategy. Consider whether you want exposure to a specific property type or prefer a diversified REIT that owns multiple types.