What Is Personal FinanceA real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate, such as apartment buildings, shopping centers, warehouses, data centers, or hospitals. To qualify for REIT tax status, the company must distribute at least 90% of its taxable income to shareholders as dividends each year, in exchange for avoiding corporate income tax on the amount distributed. That legal requirement is what makes a REIT a way to hold real estate without buying a building yourself. This guide assumes the basics from investing basics for beginners.
Publicly traded REITs
Most individual investors who own REITs own the publicly traded kind, bought through a normal brokerage account the same way you'd buy a stock or an ETF. Shares trade on an exchange during market hours, prices update constantly, and selling takes a few clicks, the same liquidity as any other public company. A REIT-focused ETF spreads money across dozens of individual REITs in a single trade, similar to how a stock index fund spreads money across many companies.
Non-traded REITs: a different animal
A non-traded REIT (sometimes called a private REIT) isn't listed on a public exchange. Shares get sold directly through brokers or financial advisors, often with upfront sales commissions that run considerably higher than what a public REIT ETF charges. There's no daily market price, so the stated value comes from the company's own periodic estimate rather than what buyers and sellers agree on in real time. Selling out of a non-traded REIT before a scheduled redemption window, if one exists at all, often means a steep discount or no ability to sell at all. This structure is where investors run into trouble most often. The lack of a public price makes it hard to tell whether the stated value reflects reality, and the fee load eats into returns before any of that value reaches the investor. Treat a non-traded REIT with more scrutiny than a publicly traded one, and read the fine print on redemption terms before committing money.
REITs vs. owning property directly
Buying shares in a REIT skips the parts of direct property ownership that scare a lot of people off: no large down payment, no mortgage in your name, no tenants calling about a broken water heater, no maintenance bills. What you give up is control. You don't pick the specific buildings, set the rent, or decide when to sell a given property. The REIT's management team makes those calls for the whole portfolio instead. You also give up the leverage a mortgage provides on a single property, where a relatively small down payment controls a much larger asset.
A tax point that catches people off guard
Dividends from regular stocks that meet certain holding-period rules often qualify for a lower "qualified dividend" tax rate. Most REIT dividends don't get that treatment, since the REIT itself doesn't pay corporate income tax on the distributed amount, so the income passes through to you and gets taxed at your ordinary income tax rate instead. That difference matters when you compare the headline dividend yield on a REIT against a dividend-paying stock, since the after-tax outcome runs lower for REIT income at the same yield. Holding REITs inside a tax-advantaged account like an IRA sidesteps this issue for the money inside that account, a detail worth weighing against a taxable brokerage account where the higher ordinary-income tax bite applies every year. See brokerage account comparison for how account types differ.
Nothing here recommends a specific REIT, REIT ETF, or non-traded REIT offering. Real estate values and REIT share prices go down as well as up, and non-traded REITs carry liquidity risk that a publicly traded REIT doesn't.