What type of entity is a Real Estate Investment Trust (REIT)?

A Real Estate Investment Trust (REIT) is fundamentally structured as a trust that invests in, owns, or acquires real property on behalf of its investors. This entity pools capital from multiple investors, allowing them to collectively invest in large-scale, income-producing real estate. By doing so, REITs enable individual investors to gain access to real estate investments that they might not be able to afford or manage on their own, such as commercial properties, residential complexes, and other types of real estate.

The advantage of this structure is that it allows for diversification within the real estate market, as REITs can invest in a variety of properties and real estate-related assets. Additionally, to qualify as a REIT under U.S. tax law, the entity must adhere to specific regulations, including distributing a significant portion of its income as dividends to shareholders, which can create a consistent income stream for those investing in the REIT.

This understanding of REITs underscores their role in the real estate investment landscape and how they function as a vehicle for investors to gain exposure to real estate without the challenges of direct property ownership or management.