An REIT is a company that owns real estate and pays you a share of the income it makes

REIT stands for Real Estate Investment Trust. It is a company that buys, owns, and manages buildings and land — apartments, office towers, shopping centers, warehouses, hotels. Instead of keeping all the money the properties earn, an REIT must pay out at least 90 percent of its taxable income to shareholders (the people who own pieces of it). You own a piece by buying shares, just like you would buy stock in any other company.

The main reason REITs exist is to let ordinary people invest in real estate without buying a building themselves. You do not need a down payment, a mortgage, or a contractor. You buy shares through a brokerage account, and the REIT's managers handle everything else — finding tenants, collecting rent, fixing the roof, paying property taxes.

REITs trade on stock exchanges the same way regular company stock does. You can buy and sell shares during market hours. That liquidity — the ability to turn your investment into cash quickly — is one of the biggest differences between owning REIT shares and owning a rental property outright.

Key Takeaways

  • An REIT is a company that owns real estate and must distribute at least 90 percent of its taxable income to shareholders each year.
  • You buy REIT shares through a brokerage account the same way you buy stock, and you can sell them whenever the market is open.
  • REITs own different types of properties — apartments, offices, malls, warehouses, data centers — and you choose which ones to invest in.
  • REIT shares often pay higher dividends than regular stocks because of the required income distribution, but the share price can go up or down like any stock.

How REITs make money and pay you

An REIT earns money the same way a landlord does: rent from tenants. It also may earn money from selling properties or from fees charged to manage them. After paying operating costs — maintenance, property taxes, insurance, salaries for staff — the REIT calculates its taxable income.

By law, it must distribute at least 90 percent of that taxable income to shareholders. This distribution is called a dividend. Most REITs pay dividends quarterly (four times a year), though some pay monthly. The amount you receive depends on how many shares you own and how much income the REIT earned that quarter.

Because REITs must pay out most of their income, they tend to offer higher dividend yields than regular company stocks. That is the main way you make money as a REIT shareholder — through dividends, not through the share price going up. The share price can still rise or fall based on market demand, but dividends are the core return.

Different types of REITs and what they own

REITs specialize in different kinds of real estate. An apartment REIT owns residential buildings. An office REIT owns commercial office space. A retail REIT owns shopping centers and malls. A industrial REIT owns warehouses and logistics facilities. A healthcare REIT owns hospitals, medical offices, and senior living facilities.

There are also data center REITs that own the buildings housing computer servers, hotel REITs that own lodging properties, and self-storage REITs that own storage unit facilities. Some REITs own a mix of property types; these are called diversified REITs.

The type of property matters because different sectors perform differently depending on the economy. During a recession, office and retail REITs may struggle as businesses close or downsize. Apartment and healthcare REITs tend to be more stable because people always need housing and medical care. You can choose which sectors you want to invest in based on your outlook and comfort level.

Public REITs versus private REITs

A public REIT is listed on a stock exchange — the New York Stock Exchange or NASDAQ, for example. You can buy and sell shares during trading hours through any brokerage account. Public REITs are regulated by the Securities and Exchange Commission (SEC) and must file regular financial reports that are open to the public.

A private REIT is not listed on an exchange. Shares are sold directly to investors, usually through a broker or financial advisor, and you cannot easily sell them on the open market. Private REITs are less regulated and less transparent than public ones, and they often have higher minimum investments. They also tend to be less liquid — it can take months or years to sell your shares if you need the money.

For most individual investors, public REITs are the simpler choice because you can buy and sell shares whenever you want, and you have access to full financial information. Private REITs are typically used by wealthier investors or those with longer time horizons.

Tax treatment of REIT dividends

REIT dividends are taxed differently than dividends from regular company stocks. Most REIT dividends are taxed as ordinary income, meaning they are taxed at your regular income tax rate — not the lower capital gains rate that applies to many stock dividends. This is one reason REITs work better in retirement accounts like IRAs or 401(k)s, where dividends are not taxed annually.

If you hold REIT shares in a regular taxable brokerage account, you will owe taxes on the dividends each year, even if you reinvest them. Your REIT will send you a Form 1099-DIV each January showing how much you received in dividends, and you report that on your tax return.

Some REIT dividends may be classified as return of capital or capital gains, which have different tax treatment. Your REIT's annual report or dividend statement will specify which type each payment is.

Risks and downsides of REIT investing

REIT shares are stocks, so their price fluctuates based on market conditions and investor demand. If interest rates rise, REIT prices often fall because investors can get better returns from bonds or savings accounts. If the economy weakens and tenants cannot pay rent, the REIT's income drops and so does the dividend.

REITs are also sensitive to real estate market conditions. If property values in a particular sector decline, or if vacancy rates rise (meaning fewer tenants), the REIT's assets become worth less. A REIT that owns office buildings may struggle if companies shift to remote work and need less office space.

Unlike owning a rental property directly, you have no control over how the REIT is managed. You cannot decide which properties to buy or sell, or how to maintain them. You are trusting the REIT's management team to make good decisions. If they perform poorly, your investment suffers.

How to buy REIT shares

You buy REIT shares through a brokerage account — the same account you would use to buy any stock. Open an account with a broker like Fidelity, Charles Schwab, E-Trade, or any other major firm. Fund the account with cash, then search for the REIT by its ticker symbol (a four-letter code like VICI or O) and place an order to buy shares.

You can also buy REITs through a mutual fund or exchange-traded fund (ETF) that holds multiple REITs. This approach spreads your money across many properties and sectors, reducing the risk of any single REIT performing poorly. REIT mutual funds and ETFs are a good starting point if you are new to real estate investing.

There are no special requirements or paperwork to buy REIT shares. You do not need to be accredited or wealthy. The only requirement is having a brokerage account and money to invest.

Frequently Asked Questions

Do I need a lot of money to invest in a REIT?

No. You can buy a single share of a public REIT for the price of one share, which varies but is often between $50 and $150. Many brokerages also allow fractional share purchases, so you can invest any amount. REIT mutual funds and ETFs may have minimum investments of $1,000 or less.

Can I lose money investing in a REIT?

Yes. The share price can fall if the market declines or if the REIT performs poorly. You could sell at a loss. The dividend can also be cut if the REIT's income drops. However, you cannot lose more than you invested — your liability is limited to the amount you paid for the shares.

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

A REIT is a company that owns real estate directly. A real estate mutual fund is a fund that invests in multiple REITs or real estate companies. A mutual fund gives you when ready diversification across many properties and sectors, while a single REIT focuses on one type of property or region.

Do REITs pay dividends every month?

Most REITs pay dividends quarterly, meaning four times a year. Some pay monthly. Check the REIT's website or your brokerage statement to see the payment schedule. The amount and timing may change, so you should not count on a specific payment date.

Can I hold a REIT in a retirement account?

Yes. REITs work well in IRAs, 401(k)s, and other retirement accounts because the dividends are not taxed annually. This avoids the ordinary income tax that applies to REIT dividends in regular taxable accounts. Many retirement account providers offer REIT mutual funds and ETFs as investment options.