A REIT (Real Estate Investment Trust) is a company that owns, operates, or finances income-producing real estate. REITs let regular people invest in large properties—like shopping malls, office buildings, apartments, or hotels—without having to buy or manage the property themselves.
REITs are traded on major stock exchanges, just like regular company stocks. This means you can buy and sell shares of a REIT through a brokerage account.
How Does a REIT Work?
- Collects Rent or Mortgage Payments: A REIT owns buildings or lends money to people who own buildings.
- Earns Income: The money made from rent or loan interest is collected by the REIT.
- Pays Dividends: By law, REITs must pay out at least 90% of their taxable income to shareholders as dividends (cash payments).
- You Can Buy Shares: Anyone can buy shares of a REIT, making it easy to invest in real estate.
Why Might You Want to Own REIT Shares?
1. Steady Income
REITs are known for paying regular dividends. If you own REIT shares, you might receive cash payments several times a year, which can be a reliable source of income.
2. Easy to Buy and Sell
Unlike buying a house or an apartment, you can buy or sell REIT shares quickly on the stock market. This makes your investment more flexible and liquid.
3. Diversification
REITs let you invest in real estate without putting all your money into one property. This helps spread out your risk because the REIT usually owns many different buildings or properties.
4. No Need to Manage Property
Owning real estate directly means dealing with tenants, repairs, and other headaches. With a REIT, the company handles all of that, and you just own a share.
5. Potential for Growth
If the value of the properties the REIT owns goes up, or if the company earns more rent, the value of your shares can also rise.
Example
Imagine you buy shares of a REIT that owns shopping malls. When people shop and stores pay rent, the REIT earns money. It then pays you (and other shareholders) a portion of those earnings as dividends.
Key Points to Remember
- REITs make real estate investing easy and accessible.
- They pay out most of their profits to shareholders as dividends.
- You can buy and sell shares like any other stock.
REITs can be a good way to earn steady income and diversify your investments, even if you don’t have a lot of money to start with.
Disclaimer: portions of this answer were written with the assistance of perplexity.ai, and then hand-edited by me personally.