What does a Real Estate Investment Trust (REIT) do?

A Real Estate Investment Trust (REIT) allows individuals to buy shares of a trust that invests in real estate. This structure enables investors to pool their resources and finance income-producing properties, such as commercial real estate, residential buildings, and other types of real estate ventures. By purchasing shares, individual investors can benefit from the rental income and potential appreciation of the properties without having to directly own or manage real estate themselves.

REITs are usually structured to distribute a significant portion of their taxable income in the form of dividends to shareholders, which can make them an attractive investment for those seeking income. This investment vehicle also comes with the advantages of liquidity, as shares of publicly traded REITs can be bought and sold on major stock exchanges, much like stocks in companies.

Understanding the role of REITs is crucial for anyone venturing into real estate investments, as they provide a way for a broader range of investors to participate in real estate markets while diversifying their portfolios.