What is a real estate investment trust?
Real estate investment trusts (REITs) are the point at which the stock market and real estate market collide. They are one way for individuals to invest in income-producing real estate, without purchasing and operating the property themselves. REITs allow investors to diversify into real estate without subjecting themselves to the liabilities of ownership and the oversight burdens of property management.
An ownership investment in a REIT does not resemble real estate ownership as known in the real estate market.
In fact, shares in a REIT have much more in common with stocks than with property in terms of risk and merit. As of the end of 2020, 30 REITs were featured in the Standard & Poor’s (S&P) 500 stock market index.
For stock market investors, REITs serve as a form of diversification, spreading the risk inherent in the management of a particular REIT among the broad pool of its shareholders. Investors appreciate the diversity of REIT investments, since each REIT typically owns multiple properties.
