What Is a REIT and How Does It Work?

A real estate investment trust (REIT) is a company that owns or finances income-producing real estate. Here’s what you need to know about REITs.

Types of REITs

There are three main types of REITs: equity, mortgage and hybrid. Equity REITs own and operate income-producing real estate, while mortgage REITs invest in real estate debt. Hybrid REITs combine the two approaches.

Investing in a REIT

Investing in a REIT is similar to investing in a stock. You can buy and sell shares of a publicly traded REIT on the stock market. Some REITs are also non-traded, meaning they are not publicly traded and may have less liquidity.

Tax Benefits

REITs offer some tax benefits for investors. For example, they are required to distribute at least 90% of their taxable income to shareholders in the form of dividends, which are taxed at the shareholder’s individual tax rate. Additionally, some REIT dividends may qualify for a lower tax rate.

Risks

Investing in a REIT comes with some risks, including market risk, liquidity risk and interest rate risk. It’s important to do your research and understand the risks before investing.

Conclusion

REITs can be a good investment option for those looking to invest in real estate without owning property directly. However, like any investment, they come with risks and it’s important to understand these risks before investing.