Understanding REITs: Real Estate Investing Without the Landlord Work
REITs let you invest in real estate portfolios without buying property directly. Learn how they work, their tax treatment, and how they compare to direct ownership.
Real Estate Investment Trusts (REITs) allow investors to own shares in portfolios of income-producing real estate — similar to buying stock in a company, but backed by real property assets.
How REITs Work
REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends. This makes them attractive for income-seeking investors. They trade on major stock exchanges, providing liquidity that direct real estate ownership does not.
Types of REITs
- Equity REITs: Own and operate income-producing real estate (most common type)
- Mortgage REITs (mREITs): Invest in real estate mortgages or mortgage-backed securities
- Hybrid REITs: Combine both equity and mortgage investments
REITs vs. Direct Ownership
REITs offer diversification, liquidity, and passive exposure to real estate without the responsibilities of property management. Direct ownership offers greater control, leverage, and tax advantages like depreciation. Many investors use both approaches together.
Important Consideration
REIT dividends are generally taxed as ordinary income. Consult a tax professional before investing to understand the full tax implications for your situation.
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General information for the Carolinas market, not legal, tax or investment advice. Rules differ by state and by situation — take professional advice before acting.