What is a Real Estate Investment Trust (REIT)?

A Real Estate Investment Trust (REIT) is defined as a company that owns and finances income-producing real estate. This structure allows individual investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves.

REITs typically invest in a diverse portfolio of real estate assets, including apartment buildings, office spaces, shopping centers, hotels, and more. They are often traded on major exchanges, providing investors liquidity and the potential for high dividend yields, as they are required to distribute a significant portion of their taxable income to shareholders.

This understanding of REITs highlights their operational model, which is distinct from other real estate-related entities. For instance, while a group of investors pooling funds for property purchases might resemble the concept of collective investment, it lacks the formal structure and regulatory compliance that characterize a REIT. Similarly, a company managing multiple properties for a single owner pertains to property management, not to the REIT framework, which is focused on collective investment in a range of assets. Lastly, the notion of a legal structure for property taxes does not relate to the investment or financial aspects that define a REIT.