REITs are companies that own or finance income-producing real estate. They offer investors a way to earn passive income and diversify their portfolios—without buying property directly.
Key Takeaways
- REITs provide exposure to real estate without the hassles of ownership.
- Investors earn through dividends and potential share price appreciation.
- Public REITs are easy to buy and sell like stocks.
Ways to Profit
- Dividends – REITs are required to pay at least 90% of taxable income to shareholders. Investors typically receive regular quarterly or monthly payouts.
- Share Appreciation – As REIT property values and earnings grow, share prices can rise, allowing investors to profit by selling.
- Portfolio Diversification – REITs reduce risk by spreading investment across many properties and sectors.
Types of REITs
- Equity REITs – Own and operate income-generating properties like apartments, offices, or shopping centers.
- Mortgage REITs – Invest in real estate debt and earn interest.
- Hybrid REITs – Combine both approaches.
Tax Considerations
REIT dividends are taxed as ordinary income unless held in tax-advantaged accounts like IRAs. Some REITs qualify for a 20% pass-through deduction under U.S. tax law.
FAQs
Q: Are REITs safe?
A: REITs carry risk like any stock but are generally less volatile than tech or growth stocks.
Q: What’s the minimum investment?
A: You can invest in public REITs for the price of a single share—often under $100.