--- title: "What Is a REIT? The Investment That Lets You Own Real Estate by the Share" description: "Real estate investment trusts let ordinary investors collect income from shopping centers, warehouses and data centers without ever buying a building. Two long-standing names — Federal Realty and Realty Income — show how differently the same idea can be run." category: "Personal Finance" category_url: https://boursel.com/category/personal-finance author: "Hannah Blackwood" published: 2026-06-27T21:44:20.000Z updated: 2026-06-27T21:44:20.000Z canonical: https://boursel.com/article/what-is-a-reit-the-investment-that-lets-you-own-real-estate-by-the-share tags: ["reits", "real-estate", "dividends", "income-investing", "personal-finance"] --- # What Is a REIT? The Investment That Lets You Own Real Estate by the Share Real estate investment trusts let ordinary investors collect income from shopping centers, warehouses and data centers without ever buying a building. Two long-standing names — Federal Realty and Realty Income — show how differently the same idea can be run. This is an educational explainer, not investment advice. ## The basic idea A **REIT** (pronounced "reet"), or real estate investment trust, is a company that owns or finances income-producing property and lets anyone buy a slice of it through ordinary shares. Think of it as a fund for buildings: rather than pooling money to buy stocks, investors pool money to own shopping centers, apartments, warehouses, hospitals or data centers — assets that would otherwise take millions of dollars to buy directly. Congress created the structure in 1960 specifically to open real estate to everyday investors, [according to Nareit](https://www.reit.com/what-reit), the industry's trade group. ## The rule that defines a REIT To qualify for its special tax status, a REIT must pay out **at least 90% of its taxable income to shareholders each year as dividends** — cash payments sent directly to the people who own the shares, [per the SEC](https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits). Because almost all of the profit flows out rather than being kept or taxed at the company level, REITs tend to carry higher **dividend yields** than typical stocks. (A yield is the annual dividend divided by the share price: a 5% yield pays $5 a year per $100 invested.) ## How they work Publicly traded REITs behave like stocks — you buy and sell them in a brokerage account during market hours, and the price moves through the day. That **liquidity** is a key difference from owning a building directly, where a sale can take months. There are two broad kinds. **Equity REITs** own physical property and collect rent — the most common type, spanning retail, industrial, residential, healthcare and data-center sectors. **Mortgage REITs** own no buildings; they lend to property owners or hold mortgage-backed securities, earning interest instead of rent, which makes them especially sensitive to interest rates. ## Two REITs, two strategies **Federal Realty (FRT)** runs a small, curated portfolio — roughly 100 mixed-use properties concentrated in affluent coastal markets. Its calling card is consistency: the company says it has **raised its dividend every year for nearly six decades**, which it describes as the longest such streak in the REIT industry — putting it among the "Dividend Kings," companies with 50-plus years of annual increases. **Realty Income (O)** takes the opposite tack: scale. It owns more than 15,000 properties across the U.S. and Europe and brands itself "The Monthly Dividend Company," having paid hundreds of consecutive monthly dividends. Most of its leases are **triple-net**, meaning tenants cover property taxes, insurance and maintenance on top of rent — a structure that smooths the landlord's cash flow. Its dividend yield has recently sat around 5%. (Exact streak figures and yields change over time; check current filings.) ## Why investors use REITs - **Income:** the 90% payout rule generally produces yields above broad stock indexes. - **Diversification:** real estate often moves differently from stocks and bonds. - **Liquidity:** shares sell in seconds, unlike a physical building. - **Inflation:** rents — and so REIT income — have tended to rise with prices over long periods, though that isn't guaranteed. ## The risks **Interest rates** are the big one. When rates rise, safer bonds start to out-yield REIT dividends, and REITs' own borrowing costs climb — so REIT prices often fall in rising-rate periods. **Sector risk** is real too: a retail REIT suffers when shopping moves online; an office REIT suffers when remote work cuts demand for space. And **taxes** are less favorable than many expect — REIT dividends are generally taxed as ordinary income, at your full marginal rate, rather than the lower rate on most stock dividends (though a portion may qualify for a 20% deduction under current law; ask a tax adviser). ## The metric that matters: FFO Don't judge a REIT by ordinary earnings per share. Accounting rules force buildings to **depreciate** on paper, which dents reported profit even when the property is holding or gaining value. Nareit created **funds from operations (FFO)** in 1991 as the fix: it adds that depreciation back and strips out one-time property-sale gains, giving a cleaner read on the cash a REIT's buildings actually throw off, [per Nareit](https://www.reit.com/glossary/funds-operation-ffo). Analysts compare REITs on FFO, not EPS. Federal Realty and Realty Income show the range inside a single asset class — one a concentrated, premium portfolio, the other a vast income machine. The point isn't which to buy; it's that REITs, as a category, offer an accessible, liquid way into real estate that a smart non-specialist can actually understand. ## Sources - [Real estate investment trusts (REITs)](https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits) - [What's a REIT?](https://www.reit.com/what-reit)