Real estate has long been considered one of the more tangible ways to build wealth, but purchasing additional property outright isn’t accessible for everyone.

That’s where real estate investment trusts, commonly known as REITs, come in. These options offer you a means to participate in real estate markets without buying or managing physical property, and they’re worth getting to know, whether you’re looking to invest or simply want to broaden your investment know-how.

By definition

A REIT is a company that owns, operates, or finances income-producing real estate. The properties can include commercial office buildings, apartment complexes, shopping centers, warehouses, and hospitals.

By law, REITs are required to distribute at least 90 percent of their taxable income to shareholders each year in the form of dividends. In exchange for meeting that requirement, they generally avoid paying corporate income tax. This structure is designed to make real estate income more accessible to everyday investors.

How to invest

Most individual investors access REITs through publicly traded shares, which can be bought and sold on major stock exchanges much like any other stock. This makes them relatively liquid compared to owning physical real estate. There are also non-traded REITs and private REITs, which are less liquid and generally less transparent, though they are limited to only accredited and institutional investors. REIT-focused mutual funds and exchange-traded funds (ETFs) are other options for those who prefer broader exposure across multiple property types or companies rather than selecting individual REITs.

The different types of REITs

These investments generally fall into a few broad categories. Equity REITs—the most common type—own and operate properties and generate income primarily through rents. Mortgage REITs, sometimes called mREITs, provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities; their income comes mainly from interest. Hybrid REITs combine elements of both.

Within these categories, REITs can also be sector-specific, focusing on areas like healthcare, industrial properties, retail, residential housing, and infrastructure. Each sector carries its own risk profile and responds differently to economic conditions.

Potential benefits and considerations

REITs are often noted for their dividend income, portfolio diversification potential, and relatively low barrier to entry. Because they trade on exchanges, they’re more accessible than direct property ownership and easier to exit.

That said, they come with their own risks. REIT share prices can be sensitive to interest rate changes, and dividend income from REITs is generally taxed as ordinary income rather than at the lower qualified dividend rate—something worth factoring into your overall tax picture. However, REIT dividends may qualify for the Section 199A deduction, allowing eligible investors to deduct 20 percent of that income, which reduces the effective top rate to approximately 29.6 percent. As with any investment, performance can vary, and past results don’t indicate what you can expect going forward.

Whether REITs might fit your portfolio

These investments may appeal to investors who are interested in real estate exposure, value regular income distributions, or are looking to diversify beyond stocks and bonds. Whether they’re a good fit for you depends on your broader financial goals, your timeline, your tax situation, and how much risk you’re comfortable with. Before you invest, it’s worth doing your homework and talking through the specifics with a financial advisor who understands your full picture.

While they won’t be the right choice for every investor, REITs represent a well-established vehicle for accessing real estate markets in a way that’s relatively straightforward to understand. If you’ve been curious about real estate as part of your investment mix, they present a reasonable means for you to start learning more.