What is a real estate investment trust (REIT)?

A real estate investment trust (REIT) is designed to provide a way for individuals to invest in large-scale, income-producing real estate without having to directly purchase or manage properties. REITs operate by acquiring, operating, or financing real estate that generates revenue, such as apartments, offices, hospitals, and shopping centers. They typically pay out a significant portion of their income to shareholders in the form of dividends, enabling investors to benefit from real estate investment returns and cash flow.

This structure allows investors to diversify their portfolios by gaining access to real estate markets that might otherwise be out of reach for individual investors. It also offers liquidity, as shares of publicly traded REITs can be bought and sold on major stock exchanges, similarly to stocks.

In contrast, the other options do not accurately reflect the definition of a REIT. The first choice focuses on charitable donations and property development, which is not the primary function of a REIT. The third option implies that a REIT invests in stocks of residential homebuilding companies, rather than managing and generating income from actual real estate assets. The fourth choice describes a regulatory agency, which is unrelated to the concept of a trust dedicated to real estate investment and income distribution.