REIT

In plain words

Buying a whole office tower takes hundreds of millions of dollars. Buying a share of a company that owns fifty of them takes the price of one share. That company is a REIT: it owns buildings, rents them out, and passes the rent on to its shareholders.

REITs follow special tax rules. In the US (as of 2026) a REIT must pay out at least 90% of its taxable income as dividends, and in return it usually pays little or no company income tax: the tax is paid by the shareholders on the dividends instead.

Most REITs trade on the stock exchange like any stock, so you can buy or sell them any day. They own almost every kind of property: offices, shopping centers, warehouses, apartments, hotels, data centers, even cell towers.

Example

One level deeper

The US created REITs in 1960 so that ordinary savers could own large commercial property the way they owned shares; many countries followed. To qualify, a US REIT must hold mostly real estate (at least 75% of its assets) and earn mostly rent or mortgage interest.

There are two main kinds. Equity REITs own buildings and earn rent. Mortgage REITs own property loans and earn interest, which makes them behave more like leveraged bonds.

REIT prices react strongly to interest rates. When rates rise, their borrowing gets dearer and their dividends look less attractive next to bonds, so their prices often fall. In the US their dividends are often taxed as ordinary income, not at the lower rate that applies to most stock dividends.

Why it matters

REITs let anyone own a slice of big property with a single purchase and sell it the same day, unlike a house or an office building.

They are a large source of dividend income, because the law makes them pay most of their income out.

They show what the market thinks property is worth every day, while a building’s own value is known only when it is sold.

A common mistake