What distinguishes a REIT from other real estate investments?

A Real Estate Investment Trust (REIT) has a unique structure that sets it apart from other real estate investments, primarily due to its requirement to distribute a significant portion of its taxable income to shareholders. This distribution requirement is vital as it allows REITs to avoid income tax at the corporate level, provided they adhere to specific regulations, including the mandate to pay out at least 90% of their taxable income as dividends. This characteristic makes REITs attractive to investors seeking regular income through dividends, in addition to potential capital appreciation of the investment.

In contrast to other investment entities, REITs often provide liquidity similar to stocks by being publicly traded on major exchanges, and they can also participate in various sectors within the real estate market, including commercial properties, residential units, and more. This structure fosters greater transparency and accessibility for everyday investors, differentiating it from typical real estate investments that do not have such distribution obligations or may lack the same level of market liquidity.