Ask the Experts: What is a REIT?
A REIT, short for real estate investment trust, is a company that buys, develops, manages, and/or sells income-producing real estate such as office buildings, hotels, apartment complexes, shopping centers, and medical facilities. Congress created REITs in 1960 as a way for smaller investors to invest in large-scale real estate. Since then, thousands of individual investors have purchased shares of REITs when they might not have been able to invest in real estate otherwise.
REITs are managed by real estate professionals who may decide to specialize in one type of property in a single metropolitan area (e.g., medical facilities in Boston), or in a wide range of properties and geographic areas. Generally, REITs fall into one of three categories: equity REITs, which buy, renovate, manage, and sell real estate (the most common type); mortgage REITs, which provide financing to real estate owners; or hybrid REITs, which do some of each.
REITs offer many advantages: portfolio diversification, stable dividend income (primarily from rents generated by the REIT’s properties), liquidity (public shares can be traded just like any other shares of stock), and professional management. Historically, REIT dividend yields have consistently exceeded the rate of consumer inflation (though past performance is no guarantee of future performance). Of course, REITs are subject to the same risks associated with the general real estate market, such as a disruption in supply and demand, which could increase tenant vacancies, and rising interest rates, which could increase borrowing costs.
Most REITs are listed on the major stock exchanges, and you can buy shares of these publicly traded companies through a stockbroker. For greater diversity, you can also invest in REIT mutual funds or REIT exchange-traded funds. There are hundreds of options, so if you need help combing through all the possibilities, or to purchase shares, contact your investment professional.