Real estate investment trust (REIT)

A real estate investment trust (REIT) is a pooled investment vehicle that gives investors exposure to real estate without buying property directly. A REIT raises capital from many shareholders and uses it to purchase and manage a portfolio of income-producing assets — apartment complexes, office buildings, shopping centers, warehouses, hotels — or real estate loans.

REITs come in three broad types. Equity REITs own and operate properties, earning rental income. Mortgage REITs lend money to property owners or buy mortgages and mortgage-backed securities, earning interest. Hybrid REITs combine both approaches. Most large REITs are listed on stock exchanges, so shares are far more liquid than the underlying real estate.

REITs receive special tax treatment. To qualify, a REIT must earn at least 75% of its gross income from real estate sources and distribute at least 90% of its taxable income to shareholders. Income passed through this way is taxed only at the shareholder level, avoiding the double taxation that applies to regular corporate dividends. The tradeoff for investors: most REIT dividends are taxed as ordinary income rather than at qualified dividend rates.

For investors, REITs offer steady dividend income, portfolio diversification, and a hedge against inflation, though they remain sensitive to interest rates and property market cycles. REITs are heavily tested on securities licensing exams — the SIE, Series 65, and Series 66 all expect you to know the REIT types, the 90% distribution requirement, and how REIT dividends are taxed.