A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate . REITs provide an investment opportunity for individuals to benefit from valuable real estate without having to directly buy, manage, or finance properties . They allow anyone to invest in portfolios of real estate assets, similar to investing in other industries through the purchase of individual company stock or through a mutual fund or exchange-traded fund (ETF) . The stockholders of a REIT earn a share of the income produced by the real estate assets .
REITs make money through various means, depending on their specific type:
Equity REITs: These REITs primarily own and operate income-generating properties, such as office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, and warehouses . They generate income through rental payments from tenants and may also benefit from property appreciation.
Mortgage REITs: Mortgage REITs lend money to real estate owners and operators, either directly through mortgages and loans or indirectly through the acquisition of mortgage-backed securities . Their earnings are primarily generated by the net interest margin, which is the difference between the interest they earn on mortgage loans and the cost of funding these loans .
Hybrid REITs: These REITs combine the investment strategies of both equity and mortgage REITs .
REITs provide several benefits to investors. They offer an opportunity to access dividend-based income and total returns, allowing individuals to earn a share of the income produced through commercial real estate ownership . Additionally, REITs provide a way for individual investors to invest in large-scale, income-producing real estate without the need to directly purchase commercial properties .
It’s worth noting that REITs can be publicly traded or privately held. Publicly traded REITs are listed on exchanges and can be bought and sold like stocks and ETFs, while privately held REITs are not publicly traded .