Real Estate Investment Trusts (REITs) Explained
Invest in real estate through the stock market without buying property. Learn how REITs work and how to add them to your portfolio.
💡 Key Takeaways
- ✓REITs must pay out 90% of income as dividends
- ✓High dividend yield but taxed as ordinary income
- ✓Trade like stocks with easy entry and exit
- ✓Sensitive to interest rate changes
REITs (Real Estate Investment Trusts) own income-producing real estate and are required by law to distribute at least 90% of taxable income as dividends.
Equity REITs own physical properties — apartments, office buildings, malls, warehouses. Mortgage REITs lend money to real estate owners.
The dividend yield on REITs is typically higher than regular stocks, making them attractive for income investors. But dividends are taxed as ordinary income.
REITs trade on stock exchanges like regular stocks. You can buy as little as one share, giving you diversified real estate exposure for under $100.
During rising interest rate environments, REITs often underperform because their debt costs rise and bonds compete for yield-seeking investors.
Summary
- 1REITs must pay out 90% of income as dividends
- 2High dividend yield but taxed as ordinary income
- 3Trade like stocks with easy entry and exit
- 4Sensitive to interest rate changes
📖 Recommended Reading
Want to dive deeper into this topic? Check out our recommended book to master these concepts.
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Disclaimer: This content is for educational purposes only and should not be considered financial advice. Always do your own research and consult with a qualified professional before making investment decisions.
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