REITs — Real Estate Investment Trusts Explained

Overview

REITs let you invest in real estate without buying property. They're required to distribute 90%+ of taxable income as dividends, making them one of the highest-yielding equity categories. Discover how REIT yield stacks up against traditional equities in the stock market section, and explore other non-stock options in alternative investments. For sector-specific picks, continue to Top REIT Sectors for Dividend Income.

Key Takeaways

• REITs own and operate income-producing real estate (offices, apartments, data centres, malls).
• By law, REITs must distribute at least 90% of taxable income as dividends.
• REIT dividends are typically ordinary income — less tax-efficient than qualified dividends.
• Equity REITs own property; Mortgage REITs (mREITs) invest in mortgage-backed securities.

Practical Tips

• Diversify across REIT sectors: industrial, residential, data centre, healthcare, retail.
• Use Funds From Operations (FFO) instead of earnings to value REITs — P/FFO replaces P/E.
• Hold REITs in tax-advantaged accounts (IRA, 401k) due to ordinary dividend taxation.