A REIT — real estate investment trust — is a company that owns income-producing property and trades on a stock exchange. Buy a share and you own a fraction of its buildings and the rent they generate.

The deal that defines them

REITs get a special tax structure: in most jurisdictions they pay little or no corporate tax on rental income, provided they distribute the large majority of that income to shareholders. That trade is the whole point. It is why REITs are known for high dividends — they are legally structured to hand the rent over rather than hoard it.

The consequence is that a REIT cannot easily fund its own growth from retained profits. To buy more buildings it must issue shares or borrow, which makes REITs unusually sensitive to both interest rates and their own share price.

What you actually get

  • Liquidity. Sell in seconds. Selling an apartment takes months.
  • Diversification. One share can span hundreds of properties across sectors and cities.
  • No management. No tenants, no repairs, no 6am phone calls.
  • Access. Logistics warehouses, data centres and medical facilities are not things you were going to buy personally.

The catch nobody mentions

REITs behave like stocks in the short term, not like property. In a market crash your REIT can fall 40% while the buildings it owns are still standing, fully let and collecting rent. People who bought REITs expecting the smooth, slow price behaviour of physical property get a nasty surprise.

Physical property feels calmer largely because it is not priced every second. That is a reporting artefact, not an absence of risk.

Rates are the other half of the story

REITs are leveraged and yield-driven, so rising interest rates hit them twice: borrowing costs go up, and their dividend looks less attractive against newly competitive bond yields. This is why REITs often struggle in rate-hiking cycles even when occupancy is fine.

Dividends from REITs are usually taxed as ordinary income rather than at favourable dividend rates, precisely because the company did not pay tax on them first. Check your local rules before assuming a headline yield is what you keep.

Summary

REITs give you property economics with stock-market behaviour and no landlord duties. Own them for the rent and the diversification — not because you expect them to be quiet.