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REIT Investing Basics: A Way to Invest in Real Estate With Less Money

Here is what to understand about REITs before adding one to a portfolio.

  1. What a REIT is

    A real estate investment trust (REIT) pools money from many investors to buy income-producing real estate -- offices, warehouses, shopping centers, apartments, and similar properties -- then passes most of the rental income and any sale gains on to investors as dividends. It lets you gain real estate exposure without buying a building yourself.

  2. Listed REITs vs non-listed REITs

    A listed REIT trades on a stock exchange, so you can buy or sell it in real time like a stock. A non-listed REIT is not exchange-traded, which generally makes it far less liquid -- your money can end up tied up for a long period with limited ability to exit early.

  3. Why REIT dividend yields tend to run high

    To keep favorable tax treatment, REITs are legally required in many jurisdictions to distribute the large majority of their taxable income to shareholders -- for example, US REITs must distribute at least 90%. That structural requirement is a major reason REIT dividend yields often run higher than typical corporate dividend yields.

  4. How rising interest rates tend to affect REITs

    When interest rates rise, the cost of the debt REITs use to buy property increases, and safer assets like savings accounts and bonds become relatively more attractive, which together tend to put downward pressure on REIT prices.

  5. What to check before investing

    It helps to know which property type the REIT invests in -- office, logistics, retail, residential, and so on -- its current occupancy rate, and whether it has room to raise rents, since these factors shape how resilient its income is likely to be.

  6. The real risk in REIT investing

    If a downturn in the property market or rising vacancies reduces rental income, both the dividend and the share price can fall together. A REIT is a real investment product with the risk of losing principal, not a guaranteed-income substitute for a savings account.

A lower-cost way to get real estate exposure

Buying a building directly takes a large amount of capital, but a REIT gives you a way to invest in real estate income with a much smaller amount of money. This page is general educational content about how REITs work, not investment advice -- investing carries the risk of losing principal, so do your own research or consult a professional before investing.

How REIT dividends are generally taxed

REIT dividends are commonly taxed as ordinary income rather than at the lower rate that sometimes applies to regular 'qualified' corporate dividends, because the REIT itself typically pays little or no corporate-level tax on the income it distributes. Exact tax treatment depends on your country and account type, so check current rules where you invest, or consult a tax professional, before assuming a specific outcome.

Frequently Asked Questions

Is a REIT as safe as a bank deposit?

No. A REIT is an investment product whose price and dividend can fluctuate with real estate and rental market conditions, and it is not covered by deposit insurance. It carries a real risk of loss of principal.

How do you actually buy and sell a listed REIT?

Through a regular brokerage account, in real time on a stock exchange during trading hours -- the same process as buying and selling an ordinary stock, and generally far more liquid than a non-listed REIT.