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Delayed · Oct 19, 2:38 AM ET

Learn REITs

Start here

What is a REIT?

A REIT (you say it “reet”) is a company that owns buildings that make money, like apartment buildings, shopping centers and warehouses. The letters stand for real estate investment trust.

Think of it as lots of people chipping in to own a big group of buildings together. One person would need a huge amount of money to buy a whole apartment building. Instead, thousands of people each buy a small piece of the company that owns it. Each small piece is called a share.

Aerial view of the New Orleans skyline with office towers, hotels and apartment buildings
A city is full of buildings that earn rent. REITs own many buildings like these.

How does a REIT work?

  1. 1

    People buy shares

    Investors buy shares of the REIT, usually on a stock exchange, the same way people buy shares of other companies.

  2. 2

    The REIT owns buildings

    The company uses that money, plus money it borrows, to buy buildings and take care of them.

  3. 3

    Tenants pay rent

    Families in apartments, stores in a shopping center and businesses in a warehouse all pay rent.

  4. 4

    Most of the profit is paid out

    U.S. law says a REIT must pay out at least 90% of its taxable income to its shareholders each year. These payments are called dividends.

Why do REITs pay out so much? It’s the deal they make with the government: because they pass most of their income on to shareholders, REITs usually don’t pay regular company income tax on the part they pay out. The shareholders pay tax on the dividends they receive instead.

What kinds of buildings do REITs own?

A modern apartment building at dusk in Washington, D.C.
ApartmentsFamilies rent a home and pay rent every month.
A row of shops and restaurants at a small shopping center in Florida
Shopping centersStores and restaurants rent space where shoppers can find them.
A large Amazon fulfillment center building in Macon, Georgia, with a parking lot in front
WarehousesOnline stores need huge buildings to hold and ship packages, like this one used by Amazon.
The glass corner of a tall office building against a blue sky
Office buildingsCompanies rent floors so their workers have a place to work.
A tall metal cell phone tower with antennas near the top
Cell towersPhone companies pay rent to put their antennas high up on towers.

Some REITs own other things too: data centers full of computers that run the internet, hospitals and senior housing, hotels, even forests. Another kind, called a mortgage REIT, doesn’t own buildings at all. It lends money to people who buy buildings and earns interest. See every kind on the sectors page. (The photos show examples of each kind of property, not buildings owned by any particular REIT.)

Why do people buy REITs?

  • Regular payments. Because REITs must pay out most of their income, many send dividends every three months, and some every month.
  • Owning real estate without being a landlord. You don’t fix leaky sinks or look for tenants. The REIT’s workers do that.
  • Starting small. Instead of buying a whole building, you can own a small slice for the price of a share.
  • Easy to buy and sell. Shares of listed REITs trade on stock exchanges every trading day. Selling a house can take months.
  • Lots of buildings in one. One REIT can own hundreds of buildings, so one empty building doesn’t ruin everything.

Things to know

  • Prices go up and down. A REIT’s share price can drop, sometimes a lot, and you can lose money.
  • Dividends aren’t promised. If business gets worse, a REIT can lower its dividend or stop paying it.
  • Interest rates matter. REITs borrow a lot of money, so when interest rates rise, borrowing costs them more.
  • Taxes work differently. REIT dividends are often taxed differently from other stock dividends. How REIT dividends are taxed explains it.

A quick example

Say you own 10 shares of a REIT that pays $2 per share each year. 10 × $2 = $20 a year in dividends. If it pays every three months, that’s $20 ÷ 4 = $5 each time.

These are made-up numbers to show the math, not a real REIT. To try it with real REITs, use the dividend calculator.

Keep going: What Is a REIT? · How REITs work · interactive income explainer · glossary. This page is for learning only. It is not advice to buy or sell anything.

Photo credits

Photos resized for the web. Images are from Wikimedia Commons.

New here? Start with What Is a REIT?, try the interactive income explainer, or jump straight to the Glossary.

REIT Basics

What REITs are, how they work, and the rules that define them.

11 guides · 64 min of reading
The columned front of the New York Stock Exchange building with American flags
The New York Stock Exchange, where shares of many REITs are bought and sold.

Start here. What a REIT is, how it makes money, and the rules a company has to follow to count as one.

Start with What Is a REIT? A REIT is a company that owns, operates, or finances income-producing real estate and must follow IRS rules to keep that status 6 min read →
  1. How REITs Work: Turning Real Estate Into Dividends REITs raise capital, buy or finance real estate, collect rent or interest, and pass most of that income back to shareholders as dividends 6 min read
  2. The History of REITs (1960–Today) Congress created REITs in 1960 to open large-scale commercial real estate to ordinary investors, and the industry grew from there 6 min read
  3. The 90% Distribution Rule Every REIT must distribute at least 90% of its taxable income to shareholders each year, which is why REIT dividends run high 5 min read
  4. REIT Qualification Rules (Asset & Income Tests) REITs must pass annual IRS tests covering how they are organized, where income comes from, what assets they hold, and payouts 7 min read
  5. Equity REITs vs. Mortgage REITs Equity REITs own real estate and collect rent, while mortgage REITs finance real estate and earn income from interest spreads 6 min read
  6. Traded vs. Non-Traded vs. Private REITs REITs can be publicly traded on an exchange, publicly non-traded, or private, and liquidity differs enormously across the three 6 min read
  7. How REITs Make Money Equity REITs earn money mainly from rent under leases, while mortgage REITs earn interest income from real estate loans instead 6 min read
  8. What Is an UPREIT (and DownREIT)? An UPREIT holds property through an operating partnership, letting owners contribute real estate for units instead of cash 5 min read
  9. Internally vs. Externally Managed REITs REITs are run either by an in-house team or by an outside management company paid a fee, which can shape incentives differently 5 min read
  10. Are REITs Right for You? Whether REITs fit an individual's goals depends on income needs, risk tolerance, time horizon, and tax situation, among other factors 6 min read

Investing in REITs

Buying, analyzing, and building income with REITs.

12 guides · 80 min of reading
The front of a United States one-dollar bill
Dividends are cash. Over time they can add up to a steady stream of income.

How people buy REITs, how to look one over before buying, and how dividends turn into income.

Start with How to Buy REITs A practical walkthrough of how investors buy REITs, from public shares and ETFs to non-traded and private offerings 6 min read →
  1. How to Analyze a REIT (Beginner's Framework) A beginner-friendly framework for evaluating a REIT, covering sector, FFO and AFFO, leverage, portfolio quality, and valuation 8 min read
  2. Understanding REIT Dividends How REIT dividends work, why they tend to be large, and how their tax treatment differs from typical stock dividends 6 min read
  3. Dividend Yield: How to Read It What dividend yield actually measures, why REIT yields tend to run higher, and why a high yield is not automatically good news 6 min read
  4. Dividend Safety: Is the Payout Sustainable? A framework for judging whether a REIT dividend is comfortably covered, using payout ratios, cash flow trends, and the balance sheet 7 min read
  5. REIT ETFs vs. Individual REITs How buying a REIT ETF compares with buying individual REIT shares, including diversification, cost, and control tradeoffs 6 min read
  6. Building a REIT Income Portfolio How investors approach building a diversified REIT portfolio focused on generating dividend income across property sectors 7 min read
  7. Reinvesting Dividends (DRIPs) How dividend reinvestment plans automatically convert REIT cash dividends into more shares, and why investors choose to use them 6 min read
  8. Interest Rates and REITs Why REITs are often considered interest-rate sensitive, the channels involved, and why the historical relationship is not simple 7 min read
  9. REITs in a Recession How economic downturns can affect REIT occupancy, dividends, and share prices, and why property sectors respond very differently 7 min read
  10. Common REIT Investing Mistakes Common missteps investors make with REITs, from chasing yield to ignoring leverage and misreading standard net income figures 7 min read
  11. REITs for Retirement Income How REITs are commonly used as part of a retirement income mix, and what retirees typically weigh before relying on that income 7 min read

Metrics & Analysis

FFO, AFFO, NAV, leverage — the numbers that actually matter.

14 guides · 86 min of reading

FFO, the REIT’s favorite number (simplified)

Net incomeWhat the company earned, by the regular accounting rules.
+DepreciationAdd it back. Accounting says buildings lose value every year, even when they don’t.
−Gains on salesTake out one-time profits from selling buildings.
=FFOFunds from operations: closer to the cash the buildings really bring in.

The numbers people use to judge a REIT. The most important one, FFO, fixes a quirk in regular profit numbers.

Start with FFO (Funds From Operations) Explained FFO adds back real estate depreciation and removes property-sale gains from net income, the REIT sector's core earnings number 6 min read →
  1. AFFO (Adjusted FFO) Explained AFFO takes FFO further by subtracting recurring capital spending and adjusting for straight-line rent to estimate distributable cash 6 min read
  2. FFO vs. Net Income Why GAAP net income and FFO diverge for REITs, and why real estate depreciation is the reason the two numbers tell different stories 5 min read
  3. Price-to-FFO (the REIT P/E) Price-to-FFO swaps FFO for net income in the familiar P/E formula, fixing the distortion real estate depreciation causes REITs 6 min read
  4. REIT Payout Ratios How to calculate a REIT's FFO and AFFO payout ratios, and why REIT payout ratios run higher than the broader stock market 6 min read
  5. Net Asset Value (NAV) Explained Net Asset Value estimates what a REIT's real estate is worth today using cap rates, and how that differs from GAAP book value 6 min read
  6. Premium & Discount to NAV Comparing a REIT's stock price to its estimated Net Asset Value per share to see whether shares trade above or below that value 6 min read
  7. Net Debt / EBITDA & REIT Leverage Net Debt / EBITDA measures how many years of cash earnings it would take a REIT to repay its debt, the sector's core leverage gauge 6 min read
  8. Reading a REIT Balance Sheet How to read a REIT's balance sheet, real estate at depreciated cost, secured and unsecured debt, and preferred stock and OP units 7 min read
  9. Same-Store NOI Same-store NOI isolates organic property performance from acquisitions, giving the cleanest read on a REIT's existing portfolio 6 min read
  10. Occupancy, Leasing Spreads & WALT Occupancy, leasing spreads and WALT explained together, the leasing statistics that drive every REIT's same-store NOI growth story 7 min read
  11. Cap Rates Explained Cap rate equals net operating income divided by property value, the core formula behind how commercial real estate gets priced 6 min read
  12. Implied Cap Rate Implied cap rate reverse-engineers a cap rate from a REIT's stock price, using enterprise value in place of a private sale price 6 min read
  13. How to Read a REIT Earnings Supplement How to read a REIT's quarterly earnings supplement, the FFO reconciliation, same-store NOI, leasing stats and debt schedule inside 7 min read

Sectors & Property Types

From apartments to data centers, how each REIT sector works.

13 guides · 52 min of reading
The Colonnade Hotel, a historic hotel building in Coral Gables, Florida
A hotel in Coral Gables, Florida. Hotels are one of more than a dozen REIT sectors.

Every kind of property REITs own, from apartments and stores to cell towers and data centers, and what makes each one different.

Start with REIT Sectors Overview A guided tour of the major REIT property sectors, what each one owns, and why sector shapes risk as much as size or yield does 4 min read →
  1. Residential REITs How apartment, single-family rental, and manufactured-housing REITs earn rent from households and what drives their occupancy 4 min read
  2. Retail REITs How mall, shopping-center, and strip-center REITs earn rent from retailers and why grocery-anchored centers held up well 4 min read
  3. Office REITs How office REITs lease space to corporate tenants and why hybrid work has reshaped demand for downtown and suburban buildings 4 min read
  4. Industrial & Logistics REITs How warehouse and logistics REITs profit from e-commerce and supply chains, and why new supply can catch up with demand fast 4 min read
  5. Data Center REITs How data center REITs lease server space and power to cloud and enterprise tenants, and why electricity access limits growth 4 min read
  6. Cell Tower / Infrastructure REITs How cell tower REITs lease the same site to multiple wireless carriers, and why mobile data growth has driven decades of demand 4 min read
  7. Self-Storage REITs How self-storage REITs rent flexible units tied to moving and downsizing, and why demand differs from the broader economy 4 min read
  8. Healthcare REITs How healthcare REITs own senior housing, medical offices, and hospitals, and why an aging population drives long-term demand 4 min read
  9. Hotel & Lodging REITs How hotel REITs own real estate run by outside operators under major brands, and why room revenue is the most cyclical type 4 min read
  10. Net Lease REITs How net lease REITs collect rent from single tenants who also cover taxes, insurance, and upkeep on long, escalating leases 4 min read
  11. Timberland REITs How timberland REITs earn income from harvesting and selling timber, and why housing construction drives demand for logs 4 min read
  12. Gaming & Specialty REITs How gaming REITs lease casino real estate to licensed operators, plus how billboard and farmland REITs round out specialty 4 min read

Taxes, Rules & Structure

How REIT dividends are taxed and how REITs are put together.

9 guides · 42 min of reading
A stone sign reading Internal Revenue Service Building, 1111 Constitution Avenue NW
The Internal Revenue Service building in Washington, D.C.

How REIT dividends are taxed and how REITs are set up behind the scenes. Worth a read before tax season.

Start with How REIT Dividends Are Taxed Most REIT dividends are taxed as ordinary income, not the lower qualified-dividend rate many other stocks get, so the after-tax picture differs 5 min read →
  1. The 20% Pass-Through (Section 199A) Deduction A 2017 tax law lets many investors deduct up to 20% of their qualified REIT dividends before tax is applied each year 5 min read
  2. Return of Capital Distributions Part of many REIT distributions isn't taxed as income at all — it's classified as a return of your own invested capital 5 min read
  3. REITs in IRAs & 401(k)s Because REIT dividends are mostly ordinary income, many investors choose to hold them inside a retirement account 5 min read
  4. Reading Your 1099-DIV Form 1099-DIV splits a REIT's distributions into ordinary income, capital gains, and return-of-capital boxes for tax time 5 min read
  5. Why REITs Avoid Corporate Tax REITs can skip corporate income tax by law, as long as they pay out at least 90% of taxable income to shareholders each year 4 min read
  6. Foreign Investors & REIT Taxes (FIRPTA) FIRPTA is a U.S. law that can tax foreign investors on REIT-related gains that might otherwise escape U.S. tax 4 min read
  7. The REIT Structure (Trust, OP, TRS) Behind a single stock ticker, most large REITs use a layered legal structure built around a trust, an OP, and a TRS 4 min read
  8. REIT Compliance & Regulation REITs answer to the SEC for disclosure, the IRS for annual tax qualification, and exchange rules if their stock is listed 5 min read

Comparisons

REITs versus stocks, bonds, rental property, and more.

9 guides · 51 min of reading
A light blue two-story wooden house on a street in Buffalo, New York
Buying a rental house yourself is one way to own real estate. A REIT is another.

How REITs stack up against stocks, bonds and owning a rental property yourself.

Start with REITs vs. Stocks A side-by-side look at how REITs and broader stocks compare on income, taxation, valuation metrics, and price volatility 5 min read →
  1. REITs vs. Bonds How bond coupons and maturities compare with REIT dividends and share prices on income, risk, and rate sensitivity 5 min read
  2. REITs vs. Rental Property Comparing REIT shares with direct rental property ownership on liquidity, capital required, control, effort, and taxes 6 min read
  3. REITs vs. Real-Estate Crowdfunding How exchange-traded REITs compare with real-estate crowdfunding platforms on liquidity, regulation, fees, and access 6 min read
  4. REITs vs. Real-Estate Mutual Funds Comparing individual REIT shares with real-estate mutual funds on pricing, management style, diversification, and cost 5 min read
  5. REITs vs. Dividend Stocks How mandatory REIT payouts compare with discretionary dividend-stock payouts on yield, taxation, and measurement 5 min read
  6. REITs vs. Utilities Comparing REITs and utility stocks, two classic income sectors, on regulation, business model, leverage, and taxes 5 min read
  7. Equity vs. Mortgage REITs (Deep Dive) A deeper look at how equity and mortgage REITs differ in financing, leverage, valuation, and dividend behavior 7 min read
  8. Traded vs. Non-Traded REITs (Deep Dive) A deeper look at how exchange-traded, non-traded, and private REITs differ in pricing, liquidity, fees, and regulation 7 min read

Glossary

Every REIT term — FFO, cap rate, NAV, NOI and more — defined in plain language.

155 terms
Dividend Yield
The indicated annual dividend divided by the current share price, expressed as a percentage. Compare yields across the sector on the REIT screener, or read...
Funds From Operations (FFO)
FFO is the REIT industry's standard earnings measure, used instead of GAAP net income because net income is weighed down by real estate depreciation that...
Net Asset Value (NAV)
NAV is an estimate of what a REIT's underlying real estate and other assets would be worth if sold off property by property, minus liabilities, as distinct...
Occupancy
The percentage of a property or portfolio's rentable space that is currently leased. See occupancy, leasing spreads, and WALT explained.
Cap Rate
Short for capitalization rate: a property's annual NOI divided by its value or purchase price, expressed as a percentage. It is a single-year, unlevered...
Payout Ratio
Dividends paid divided by earnings, expressed as a percentage. For REITs, the payout ratio is commonly measured against FFO or AFFO rather than GAAP net...
Open the full glossary →
Topic photo credits

Photos resized for the web. Images are from Wikimedia Commons.

Research and education only — nothing here is investment advice.