A Real Estate Investment Trust (REIT) is a company that owns income-producing real estate and lets you invest in real estate without buying property. REITs are traded on stock exchanges just like regular stocks — you can buy a share of a REIT for as little as $10–$50 and get exposure to commercial real estate, apartments, warehouses, and more.
How REITs work
By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends. This makes them excellent income investments — REIT dividend yields typically range from 3%–7%, significantly higher than most stocks. In exchange for this tax treatment, REITs pay corporate taxes differently than regular companies.
Types of REITs
Equity REITs own physical properties — apartments, shopping centers, warehouses, office buildings, data centers, hospitals. Mortgage REITs (mREITs) invest in mortgages and mortgage-backed securities rather than physical property. Equity REITs are generally more stable and appropriate for most investors.
REIT vs owning rental property
Owning rental property can generate significant returns but requires large capital, active management, and dealing with tenants, repairs, and vacancies. REITs give you real estate exposure with none of that — completely passive, highly liquid (you can sell in seconds), and accessible with any budget.
How to invest in REITs
You can buy individual REIT stocks through any brokerage account. For diversification, REIT ETFs like VNQ (Vanguard Real Estate ETF) give you exposure to dozens of REITs in one purchase. REITs can also be held in IRAs and 401ks, which makes the dividends tax-advantaged.