What is a "real estate investment trust" (REIT)?

A real estate investment trust (REIT) is best understood as a company that owns, operates, or finances income-producing real estate. REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves. They typically invest in various kinds of properties, such as apartment buildings, hospitals, shopping malls, and office buildings.

By pooling resources from a large number of investors, REITs allow for diversification and lower risk compared to individual real estate investments. Furthermore, they are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them appealing for investors looking for income alongside potential appreciation. This structure promotes liquidity and access to the real estate market for a broader range of investors, as shares of publicly traded REITs can be bought and sold on major stock exchanges like any other public company shares.

The other choices do not accurately capture the essence of a REIT's purpose or function. A company managing property renovations focuses specifically on improving existing properties rather than owning or financing real estate. Regulating property sales involves oversight and legal frameworks that address how properties are bought and sold, which is unrelated