What is a 'real estate investment trust (REIT)'?

A 'real estate investment trust (REIT)' is accurately defined as a company that owns and operates 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 or manage any properties themselves. The typical structure involves the REIT acquiring, managing, and generating income from a diversified portfolio of real estate assets, which can include residential apartments, office buildings, shopping centers, hotels, and more.

Furthermore, for a company to qualify as a REIT, it must adhere to specific regulatory requirements, such as distributing at least 90% of its taxable income to shareholders in the form of dividends. This structure provides a way for individuals to invest in large-scale real estate ventures that they would not typically be able to afford on their own, promoting liquidity and a level of investment access in the real estate market.

Understanding the function of a REIT is essential as it plays a significant role in investment strategies and portfolio diversification for both individual and institutional investors.