REIT stock is a share in a company that owns and operates real estate, and you buy and sell it on the stock market just like any other stock

A REIT (Real Estate Investment Trust) is a corporation that owns buildings, apartments, shopping centers, warehouses, or other property. When you buy REIT stock, you own a piece of that corporation. The company collects rent from tenants, pays its expenses, and distributes most of its profit to shareholders — that's you — as dividends. You can buy and sell REIT shares through a brokerage account the same way you would buy shares of Apple or Microsoft.

The main reason people buy REIT stock is the dividend income. By law, REITs must distribute at least 90 percent of their taxable income to shareholders. That means REIT dividends are often higher than dividends from regular stocks. You also get the potential for the stock price itself to rise if the real estate the REIT owns becomes more valuable or if the company performs better over time.

Key Takeaways

  • REIT stock represents ownership in a real estate company and trades on stock exchanges like any other stock.
  • REITs must pay out at least 90 percent of their taxable income as dividends to shareholders, which is why dividend yields tend to be higher than most stocks.
  • You can buy REIT shares through a regular brokerage account without needing to own property or manage tenants yourself.
  • REIT dividends are taxed as ordinary income, not as capital gains, which affects how much you keep after taxes.

How REIT dividends work

When a REIT collects rent, it pays operating costs — maintenance, property taxes, insurance, staff salaries — and then distributes the remaining profit to shareholders as a dividend. This dividend is usually paid quarterly, though some REITs pay monthly. The amount varies depending on how much profit the REIT made that quarter and how many shares you own.

Unlike regular corporate dividends, which come from after-tax profit, REIT dividends come from pre-tax income. This is why the payout is so large — the REIT doesn't pay federal income tax on the money it distributes. However, you pay income tax on the dividend when you receive it, at your ordinary income tax rate (not the lower capital gains rate). This is an important difference from dividend stocks, where many dividends may have access to for preferential tax treatment.

Types of property REITs own

REITs specialize in different kinds of real estate. An apartment REIT owns residential buildings. A retail REIT owns shopping centers and malls. A healthcare REIT owns hospitals, medical offices, and senior living facilities. A data center REIT owns the buildings that house computer servers. An industrial REIT owns warehouses and logistics facilities.

Each type performs differently depending on economic conditions. During a recession, apartment REITs may struggle if tenants can't pay rent, while healthcare REITs may hold steady because people still need medical care. During strong economic growth, retail REITs may thrive. Choosing a REIT means choosing which type of property you think will do well.

Buying and selling REIT stock

You buy REIT stock through a brokerage account — the same account you would use to buy any stock. You can open one at firms like Fidelity, Charles Schwab, E-Trade, or many others. You search for the REIT by its ticker symbol (a four-letter code like REALTY or STORE), enter how many shares you want, and place your order. The transaction settles in two business days, and you own the shares.

You can sell your shares anytime the market is open, just as you would with any stock. The price fluctuates based on supply and demand and on how investors think the REIT will perform. If the REIT owns property in a hot market or reports strong earnings, the stock price may rise. If interest rates go up or the real estate market softens, the price may fall.

Tax treatment of REIT dividends and capital gains

REIT dividends are taxed as ordinary income at your marginal tax rate — the same rate you pay on wages or salary. This is different from may have access to dividends from regular stocks, which are taxed at lower capital gains rates (0 percent, 15 percent, or 20 percent depending on your income). If you are in the 24 percent tax bracket and receive a $100 REIT dividend, you owe $24 in federal tax on it.

If you sell REIT shares for more than you paid, the profit is a capital gain and is taxed at capital gains rates. If you hold the shares for more than one year before selling, it is a long-term capital gain and gets the preferential rate. If you sell within one year, it is a short-term capital gain and is taxed as ordinary income. This tax treatment is the same as for any stock.

Risks of REIT stock

REIT stock prices move with the stock market and with interest rates. When the Federal Reserve raises interest rates, bond yields become more attractive, and investors may sell stocks (including REIT stocks) to buy bonds instead. This can push REIT prices down even if the underlying property is performing well. Conversely, when rates fall, REIT stocks often rise.

REITs also carry property-specific risks. A retail REIT may suffer if e-commerce continues to replace brick-and-mortar shopping. An office REIT may struggle if remote work reduces demand for office space. A healthcare REIT depends on nursing homes and hospitals staying profitable. Economic downturns can reduce tenant demand and ability to pay rent, hurting dividend payments and stock price.

REIT stock versus owning property directly

Buying REIT stock is a way to own real estate without the work of being a landlord. You don't manage tenants, fix leaks, or deal with vacancies. You also don't need a large down payment — you can buy one share for the price of one share, which may be $50 to $100. You can sell quickly if you need cash, whereas selling a physical property takes months.

The trade-off is that you don't control the property or the decisions the REIT makes. You also pay the REIT's management fees and expenses, which reduce your return. And as noted above, REIT dividends are taxed less favorably than capital gains. For some investors, REIT stock is a convenient way to diversify into real estate; for others, owning property directly offers more control and better tax treatment.

Frequently Asked Questions

Do I need to own property to buy REIT stock?

No. REIT stock is just like any other stock — you buy it through a brokerage account with cash. You don't need to own property, have a mortgage, or have any real estate experience. The REIT owns and manages the property; you own a share of the REIT.

Are REIT dividends paid monthly or quarterly?

Most REITs pay dividends quarterly, but some pay monthly. Check the REIT's investor relations page or your brokerage statement to see the payment schedule. Monthly payments can be convenient for income, but they don't mean the REIT is better — it's just a different payment frequency.

Can REIT stock prices go down?

Yes. REIT stock prices fluctuate based on interest rates, economic conditions, and how well the REIT performs. A rising interest rate environment often pushes REIT prices down. A recession can reduce tenant demand and rent growth. You can lose money on REIT stock even if the dividend is steady.

What happens to my REIT dividends if the company cuts them?

If a REIT's profit falls, it may reduce or suspend its dividend. This happens during recessions or when property values decline. When a REIT cuts its dividend, the stock price usually falls sharply because income-focused investors sell. You would receive the lower dividend going forward until the REIT restores it.

Should I hold REIT stock in a retirement account or a regular account?

Because REIT dividends are taxed as ordinary income, holding them in a tax-deferred retirement account (like an IRA or 401k) can be tax-efficient — you avoid the annual tax bill on dividends. In a regular taxable account, you pay tax on dividends each year. However, this depends on your overall tax situation and investment strategy.