What Is A REIT? (2024)

Different types of REITs operate in different ways. Below is a closer look at some of the most common types of REITs to understand.

Mortgage REITs

Mortgage REITs (mREITs) derive their income from interest on mortgages. Each type of property is built with the proceeds of a mortgage, and some REIT investors collect the interest paid on the mortgage as income. They’re popular because they return the relatively high interest payments collected on commercial mortgages.

Commercial real estate mortgages come at a higher interest rate because they’re considered riskier than those underlying residential real estate. Thus, investors in commercial mortgage REITs will earn more interest (while assuming more risk) than those investing in residential real estate mortgage REITs.

Equity REITs

Properties can generate rental income, which, after collecting fees for property management, provides income to its investors. These REITs generate income from renting real estate to tenants. After paying expenses for operation, equity REITs pay out dividends to their shareholders on a yearly basis.

Hybrid REITs

Hybrid REITs contain both equity and mortgage holdings. They give investors more diversity, offering better protection from real estate market swings. They can work well with both income- and growth-oriented portfolios.

Publicly Traded REITs

Due to the accessible nature of publicly traded REITs, this is the way most people invest in real estate.

Publicly traded REITs trade on a stock exchange, such as the Nasdaq or the New York Stock Exchange (NYSE). They’re highly liquid – meaning they can be bought or sold at any time, so your money isn’t tied up – and are open to all types of investors. You can open a brokerage account with any online trading platform and begin purchasing REITs.

Publicly Non-Listed REITs

Publicly non-listed REITs are offered to all but not listed on stock exchanges. There are both legitimate reasons for this – as when a project requires a low profile for competitive reasons – and unscrupulous ones as well. These projects typically offer little transparency and often charge upfront fees, so you need to know who you’re dealing with and have a keen understanding of the project and its risk.

The potential upside is a bigger return that reflects the greater risk you’re incurring. However, there are significant potential downsides as well for novice investors. In addition to the risk of fraud, buying into a public non-listed REIT means you are forsaking the consumer protections and avenues of redress afforded by SEC regulations.

Private REITs

Private REITs are not open to the public. They aren’t registered on the SEC and are only sold to institutional investors or accredited investors. These REITS usually have high minimum investments and are considered illiquid investments, as they can be very hard to sell.

What Is A REIT? (2024)


What is a reit in simple terms? ›

A Real Estate Investment Trust (REIT) is a security that trades like a stock on the major exchanges and owns—and in most cases operates—income-producing real estate or related assets.

Why is REIT a good investment? ›

Why REITs make a good investment. REITs offer investors several benefits that make them an ideal fit in any investment portfolio. These include competitive long-term performance, attractive income, liquidity, transparency, and diversification.

What is the 90% requirement for a REIT? ›

What are the dividend distribution requirements for a REIT? In order to qualify as a REIT, the REIT must distribute at least 90% of its taxable income. To the extent that the REIT retains income, it must pay taxes on such income just like any other corporation.

What is a real estate investment trust (REIT) Quizlet? ›

Real estate investment trusts (REITs) are companies that own, and usually operate income producing real estate. REITS generally own many types of commercial real estate, including multifamily, warehouses, and retail.

What is special about REITs? ›

REITs are true total-return investments. They provide high dividend yields along with moderate long-term capital appreciation.4 Look for companies that have done a good job historically at providing both. Unlike traditional real estate, many REITs are traded on stock exchanges.

What are the pros and cons of REITs? ›

Real estate investment trusts reduce the barrier to entry for investors in the real estate market and provide liquidity, regular income and other perks. However, you'll be exposed to risks that aren't inherent in the stock market and dividends are subject to ordinary income tax.

Why are REITs not doing well? ›

Here's an explanation for how we make money . More than a year of interest rate hikes by the Federal Reserve pushed down returns on real estate investment trusts, or REITs. While higher rates negatively impacted nearly every sector of the economy in 2022 and most of 2023, real estate was hit especially hard.

Is it a good time to buy REITs now? ›

With rate cuts on the horizon, we believe investors have an opportunity to continue investing into S-Reits as the high estimated dividend yield of close to 7 per cent in 2024 will look increasingly attractive.

How do REITs pay out? ›

The common denominator among all REITs is that they pay dividends consisting of rental income and capital gains. To qualify as securities, REITs must payout at least 90% of their net earnings to shareholders as dividends.

What is a good amount to invest on a REIT? ›

According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.

Can REITs pass through losses? ›

Finally, a REIT is not a pass-through entity. This means that, unlike a partnership, a REIT cannot pass any tax losses through to its investors. Consider consulting your tax adviser before investing in REITs. The Office of Investor Education and Advocacy has provided this information as a service to investors.

What type of property do REITs usually invest in? ›

REITs invest in the majority of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, telecommunications towers, infrastructure and hotels.

Which of these is a disadvantage of a REIT investment? ›

Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.

How is a REIT like a mutual fund? ›

REITs. The structure of a real estate investment trust (REIT) structure is similar to that of a mutual fund in that investors combine their capital to buy a share of commercial real estate and then earn income from their shares—but with some key differences.

What are the disadvantages of REITs? ›

Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.

Why is REIT risky? ›

Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.

How do you make money in a REIT? ›

First, residential REITs make dividend payments to investors on a regular basis. The size and timing of these payments will depend on the performance of the REIT and the payment schedule set by the REIT. Investors also make money by holding onto their REITs and selling them after they've increased in value.

What is the difference between a REIT and a stock? ›

The main difference between investing in real estate and stocks is that investing in real estate involves buying properties and renting them out or investing in REITs (real estate investment trusts), whereas investing in stocks involves buying a small slice of a company and waiting for those shares to increase in value ...


Top Articles
Latest Posts
Article information

Author: Rueben Jacobs

Last Updated:

Views: 5739

Rating: 4.7 / 5 (57 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Rueben Jacobs

Birthday: 1999-03-14

Address: 951 Caterina Walk, Schambergerside, CA 67667-0896

Phone: +6881806848632

Job: Internal Education Planner

Hobby: Candle making, Cabaret, Poi, Gambling, Rock climbing, Wood carving, Computer programming

Introduction: My name is Rueben Jacobs, I am a cooperative, beautiful, kind, comfortable, glamorous, open, magnificent person who loves writing and wants to share my knowledge and understanding with you.