What is the main function of a Real Estate Investment Trust (REIT)?

A Real Estate Investment Trust (REIT) primarily functions by pooling capital from multiple investors to invest in a diversified portfolio of income-generating real estate properties and real estate-related financial instruments. The core purpose of a REIT is to generate income for its shareholders, and it is required by law to distribute at least 90% of its taxable income to investors in the form of dividends. This structure allows investors to earn a share of the income produced through commercial real estate ownership without having to buy, manage, or finance any properties directly.

This investment vehicle is particularly attractive because it not only provides a method for individual investors to access real estate investments—typically reserved for large institutional investors—but also offers liquidity comparable to equities. REITs operate in various sectors, including retail, residential, commercial, and healthcare, making them versatile in investment strategies.

The other options do not encapsulate the full purpose and functionality of a REIT. While managing residential properties, providing loans, or selling development services are important aspects of the real estate sector, they do not define the fundamental nature of what a REIT is designed to do—namely, to aggregate investments in real estate and provide income distributions to its shareholders.