A REIT, or Real Estate Investment Trust, is a company that owns and typically operates income-producing real estate or related assets. REITs are regulated by the U.S. Securities and Exchange Commission (SEC) and must pay out at least 90% of their taxable income to shareholders each year in the form of dividends.
They are also required to invest at least 75% of their total assets in real estate investments, such as office buildings, shopping malls, apartments, hotels, and other types of properties.
REITs can be divided into two main categories: Equity REITs and Mortgage REITs. Equity REITs own and manage real estate properties directly and generate income from rent payments received from tenants. Mortgage REITs invest in mortgages secured by real estate properties instead of owning the properties themselves.
They generate income from interest payments received on the mortgages they hold. Both types of REITs trade on national securities exchanges like stocks and can provide investors with diversification benefits as well as potential tax advantages.
