Real Estate Investment
What Is a REIT (Real Estate Investment Trust)?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. REITs allow individual investors to buy shares in large commercial real estate portfolios — earning income without directly buying or managing properties. Most REITs trade on major stock exchanges like publicly traded companies.
Types of REITs
Equity REITs
Own and operate income-producing properties: apartments, offices, shopping centers, industrial warehouses, hotels. Income comes from rental payments and property appreciation. Most common REIT type.
Mortgage REITs (mREITs)
Lend money to real estate owners or invest in mortgage-backed securities. Income comes from interest on loans. More sensitive to interest rate changes than equity REITs.
Hybrid REITs
Combine equity and mortgage REIT strategies. Own properties AND hold real estate loans. Diversified income streams from both rent and interest.
REIT Legal Requirements
Must invest at least 75% of total assets in real estate
Must earn at least 75% of gross income from real estate activities
Must distribute at least 90% of taxable income to shareholders as dividends
Must have at least 100 shareholders
5/50 rule: five or fewer individuals cannot own more than 50% of shares
Most REITs pay little or no corporate income tax due to the distribution requirement
Real Estate Exam Key Points
REIT distributes 90%+ of taxable income as dividends to shareholders
Allows small investors access to large commercial real estate portfolios
Equity REITs own properties; mortgage REITs lend money
Trade on major stock exchanges — publicly traded and liquid
Must have 100+ shareholders; 5/50 rule prevents concentrated ownership
Returns come from dividends (income) and share price appreciation
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