Property exposure through shares
No tenants to manage.
All tracks and lessons
REITs: real estate without being a landlord
Real estate investment trusts own income-producing property and pay out most of their taxable income.
In this lesson you will
- Explain what a REIT owns
- Know the 90% distribution rule
- Compare listed and non-traded REITs
A real estate investment trust (REIT) is a company that owns or finances income-producing real estate — such as offices, apartments, warehouses or data centres. Many trade on exchanges like stocks.
Why they pay dividends
To qualify as a REIT under US tax law, a company must generally distribute at least 90% of its taxable income to shareholders, which is why REITs are known for dividends.
Ways to own them
- Individual listed REITs.
- REIT index funds or ETFs.
- Broad stock index funds, which already include listed REITs.
- Non-traded REITs, which can be hard to sell and often carry higher fees.
Risks
REIT prices can be sensitive to interest rates and property markets. In taxable accounts, much of a REIT’s dividend is typically taxed as ordinary income rather than at lower qualified-dividend rates.
Education only — GetGuac does not recommend specific investments.
By the GetGuac team · Editorial policy
Three ideas to keep
Dividends by design
At least 90% of taxable income.
Liquidity differs
Non-traded REITs can be hard to sell.
Do it in 4 steps
Check what you already own
Broad funds include REITs.
Prefer liquid, low-cost options
If adding any.
Consider account location
Taxable vs retirement.
Read fees carefully
Especially non-traded.
Yield and tax
Made-up REIT fund: $10,000 invested, 4% distribution yield, 22% ordinary rate in a taxable account.
| Item | Amount |
|---|---|
| Yearly distributions | $400 |
| Tax if taxed as ordinary income at 22% | $88 |
| After tax | $312 |
Holding the same fund in a retirement account would defer that tax.
Where this usually goes wrong
- Buying non-traded REITs without checking liquidity and fees
- Ignoring interest-rate sensitivity
- Duplicating REITs already in broad funds
Check what percentage of a broad index fund you hold is real estate.
Tools and guides for this lesson
Quick quiz
1. REITs must generally distribute at least…
2. Non-traded REITs can be…
3. Broad stock index funds…
0 of 3 answered
Puzzle
$8,000 in a REIT fund yielding 5%. How much is distributed in a year?
Show the answer
$400
$8,000 × 0.05 = $400.