What is a real estate investment trust (REIT)?

A real estate investment trust (REIT) is specifically defined as a company that owns, operates, or finances income-producing real estate. This structure allows individual investors to earn a share of the income produced through commercial real estate ownership without having to buy, manage, or finance any properties directly. REITs provide a mechanism for individuals to invest in large-scale, income-producing properties, such as malls, office buildings, and apartments, by purchasing shares of the REIT on the stock exchange.

The model of a REIT allows for diversification and liquidity, as these companies must distribute at least 90% of their taxable income to shareholders in the form of dividends according to IRS regulations. This makes REITs an attractive investment vehicle for those looking to combine the benefits of real estate investment with the ease of public equity in the market.

Understanding the structure and function of REITs is essential for real estate professionals, as they play a significant role in the broader property market and offer various opportunities for investment.