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

A Real Estate Investment Trust (REIT) is a company that buys, owns, and manages real estate properties — apartment buildings, office parks, shopping centers, warehouses, hospitals, hotels — and then sells shares of itself to investors like you. When you buy shares in a REIT, you own a piece of that real estate portfolio without having to buy a building yourself or manage tenants.

The key mechanic is this: the REIT collects rent from the tenants in its buildings, and by law must pay out at least 90 percent of its taxable income to shareholders as dividends. That dividend is where you make money. You also make money if the share price goes up. A REIT trades on a stock exchange the same way a regular company stock does — you can buy and sell shares through a brokerage account.

REITs exist because real estate is expensive and illiquid. Buying an apartment building costs millions of dollars and takes months to sell. A REIT lets you invest in real estate with the same ease as buying stock, and you can sell your shares in seconds during market hours.

Key Takeaways

  • A REIT is a company that owns real estate and must distribute at least 90 percent of its taxable income to shareholders as dividends.
  • You buy and sell REIT shares through a brokerage account just like regular stock, giving you real estate exposure without buying property yourself.
  • REITs own different types of property — apartments, offices, malls, warehouses, hospitals — and you can choose which sectors match your goals.
  • REIT dividends are taxed as ordinary income, not at the lower capital gains rate, which affects how much you keep after taxes.
  • REITs can be publicly traded (straightforward to buy and sell) or private (harder to exit and often sold through financial advisors).

How REIT dividends work

When a REIT collects rent from its tenants, it must pass at least 90 percent of that income to you and other shareholders as a dividend. This is not optional — it is a legal requirement for the company to keep its REIT status and avoid corporate taxes. The dividend is usually paid quarterly, though some REITs pay monthly.

The dividend amount varies by REIT and changes over time. A REIT that owns stable, fully-leased apartment buildings might pay a steady 3 to 4 percent dividend each year. A REIT that owns newer properties or is in a growth phase might pay less. You can look up the current dividend yield — the annual dividend divided by the share price — before you buy.

One important detail: REIT dividends are taxed as ordinary income, not as may have access to dividends. This means they are taxed at your regular income tax rate, which is usually higher than the capital gains rate. If you own REITs in a regular taxable account, this matters for your tax bill. If you own them in a retirement account like an IRA or 401(k), the tax treatment does not affect you until you withdraw.

Types of REITs by property sector

REITs specialize in different kinds of real estate, and each sector has different risk and return characteristics. An apartment REIT owns residential rental buildings and benefits when rents rise. An office REIT owns commercial office space and has been under pressure since remote work became common. A retail REIT owns shopping centers and malls — some thrive, others struggle as online shopping grows.

Other sectors include industrial (warehouses and logistics centers), healthcare (hospitals and medical office buildings), hotels, data centers, and self-storage. Some REITs own a mix of property types; others focus on one. Your choice depends on what you think will perform well and how much risk you want to take.

Sector matters because different properties respond differently to economic conditions. When the economy is strong, office and retail REITs may do well. When people are worried about recession, apartment REITs often hold up better because people still need housing. Data center REITs have grown as companies invest in cloud computing and artificial intelligence.

Publicly traded REITs versus private REITs

A publicly traded REIT is listed on a stock exchange — the New York Stock Exchange or NASDAQ — and you can buy shares through any brokerage account during market hours. You can sell whenever you want. The price moves every day based on what other investors are willing to pay. These REITs must file regular financial reports with the Securities and Exchange Commission (SEC), so information is transparent and straightforward to find.

A private REIT is not listed on an exchange. You usually buy shares through a financial advisor or directly from the company, and there is no public market to sell into. If you want to exit, you have to wait for the REIT to be sold or go public, which can take years. Private REITs often have higher minimum investments — sometimes $25,000 or more — and charge higher fees. They are less transparent because they do not have to file SEC reports.

For most individual investors, publicly traded REITs make more sense because you can buy small amounts, see the price and financial data easily, and sell whenever you need the money. Private REITs are usually for people with larger amounts to invest and a longer time horizon.

How REIT share prices move

A REIT share price moves based on two things: what investors think the company is worth, and what interest rates are doing. When interest rates rise, bonds and savings accounts become more attractive, so investors demand higher dividends from REITs to compensate. That pushes REIT prices down. When interest rates fall, REITs become more attractive relative to bonds, and prices tend to rise.

The underlying real estate also matters. If a REIT owns apartment buildings in a city where rents are rising fast, the market may bid up the share price because future rent growth looks good. If a REIT owns office space in a city where companies are leaving, the share price may fall. Economic conditions, local real estate markets, and the REIT's management all play a role.

This means REIT prices can be volatile in the short term, even though the underlying real estate is stable. You might buy shares at $50, see them drop to $40 in six months because interest rates rose, then watch them climb back to $55 a year later as the market reprices. If you need the money in the next year or two, this volatility matters. If you are investing for the long term, the dividend income and eventual price recovery usually matter more.

Risks to understand before buying

REITs are not risk-free. Interest rate risk is the biggest one: when the Federal Reserve raises rates, REIT prices often fall because investors can get better returns elsewhere. Economic downturns hurt REITs too — if the economy contracts, tenants may struggle to pay rent, vacancy rates rise, and dividend payments can be cut.

Sector-specific risks matter too. Retail REITs face ongoing pressure from e-commerce. Office REITs are dealing with permanent remote work shifts. Hotel REITs depend on travel and tourism, which can collapse during a recession or pandemic. Apartment REITs are sensitive to local housing supply and rent control laws. You need to understand what sector you are buying into and what could go wrong.

Management and leverage also matter. Some REITs use debt to buy more properties, which magnifies returns in good times but increases risk in bad times. Poor management can destroy value. Before buying, read the REIT's annual report (called a 10-K) to understand its debt level, occupancy rates, and the quality of its properties.

How to buy REIT shares

To buy shares in a publicly traded REIT, you need a brokerage account with a firm like Fidelity, Vanguard, Charles Schwab, or any other stock broker. Open the account, fund it with money, search for the REIT by its ticker symbol, and place a buy order just like you would for any stock. The transaction settles in two business days, and the shares appear in your account.

You can also buy REITs through a mutual fund or exchange-traded fund (ETF) that holds multiple REITs. This gives you when ready diversification across sectors and companies. A REIT mutual fund or ETF might hold 50 or 100 different REITs, so you are not betting on one company's performance. Many investors find this easier than picking individual REITs.

If you want to buy a private REIT, you typically work with a financial advisor who has access to those offerings. The process is slower, the minimums are higher, and you will pay advisory fees on top of the REIT's own fees. Make sure you understand all the costs before committing.

Frequently Asked Questions

Do I have to hold a REIT for a certain amount of time?

No. You can buy and sell publicly traded REIT shares whenever you want during market hours. There is no holding period. However, if you sell within a year of buying, any gain is taxed as a short-term capital gain at your ordinary income tax rate, which is usually higher than the long-term rate. If you hold for more than a year, gains are taxed at the lower long-term capital gains rate.

Can I buy REITs in a retirement account?

Yes. You can hold REITs in an IRA, 401(k), or other retirement account. This is actually a good place for them because REIT dividends are taxed as ordinary income, and retirement accounts shelter you from that tax until you withdraw. In a regular taxable account, the high dividend tax is a drag on returns.

What is the difference between a REIT and real estate crowdfunding?

A REIT is a company that owns many properties and trades like a stock. Real estate crowdfunding platforms let you invest in individual properties or development projects, usually with higher minimums and longer lock-up periods. REITs are more liquid and easier to buy and sell; crowdfunding offers more control over which specific property you own.

Do REITs pay dividends every month?

Most REITs pay dividends quarterly, though some pay monthly or semi-annually. Check the REIT's investor relations page or your brokerage to see the payment schedule before you buy. The frequency does not change the total annual dividend — it just affects how often you receive payments.

What happens to my REIT shares if the company is acquired?

If another company buys the REIT, shareholders usually receive cash or stock in the acquiring company as part of the deal. The exact terms depend on the acquisition agreement. You do not lose your investment, but your shares in the original REIT are replaced with whatever the deal specifies. This is rare but does happen.