What is a real estate investment trust (REIT)?

A real estate investment trust (REIT) is defined as a company that owns, operates, or finances income-producing real estate. This structure allows 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.

REITs function similarly to mutual funds in the stock market, where investors can buy shares. By pooling capital from many investors, REITs can invest in a diversified portfolio of real estate assets, making it accessible for smaller investors. They typically follow specific regulatory guidelines which often require them to distribute a significant portion of their taxable income to shareholders in the form of dividends.

In contrast, other options reflect different aspects of real estate but do not accurately specify what a REIT is. For instance, the idea of a style of real estate marketing relates to promotional techniques rather than property ownership. A property management company focuses specifically on managing properties, whereas a financial loan involves borrowing money to purchase real estate but does not encapsulate the broader operational role that REITs serve in real estate investment.