What is a real estate investment trust (REIT)?

A real estate investment trust (REIT) is a company that primarily owns, operates, or finances income-producing real estate. The key characteristic of a REIT is that it pools capital from numerous investors to purchase a diversified portfolio of real estate assets, generating revenue through leasing space and collecting rents on the properties it owns. This structure allows individual investors to earn a share of the income produced through real estate ownership without having to buy or manage property directly.

REITs are also required to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive investment for income-seeking investors. Additionally, because of their unique structure and regulatory requirements, REITs must follow specific rules outlined by the IRS to maintain their tax-advantaged status, which further distinguishes them from other investment vehicles.

Other options do not accurately define a REIT: investing solely in stocks describes a different type of investment vehicle, while a cooperative structure for property ownership relates to a different model of property management. Lastly, a government regulation of property investments does not pertain to how REITs operate or their structure, making the correct understanding of what a REIT is essential for identifying its characteristics.