What constitutes a "real estate investment trust" (REIT)?

A real estate investment trust (REIT) is defined primarily by its role in managing and financing income-producing real estate. This structure allows investors to pool their money to invest in large-scale, income-generating real estate projects without the need to directly buy or manage properties themselves. REITs typically offer investors dividends and provide a way to gain exposure to real estate through the stock market, making them an attractive option for those seeking passive income and portfolio diversification.

Unlike a trust providing legal advice, a partnership for purchasing residential properties, or a non-profit organization focused on housing development, a REIT is specifically designed for the commercial exploitation of real estate assets. It is a corporation or trust that uses the majority of its income to pay dividends to investors and must adhere to certain regulatory requirements, such as distributing at least 90% of taxable income as dividends to maintain its tax-advantaged status. This structure allows REITs to combine the investment potential of real estate with the liquidity of publicly traded stocks, making them a unique and important vehicle in the real estate market.