Which type of REIT focuses on investing in mortgages rather than physical properties?

The correct answer is the type of REIT that primarily invests in mortgages rather than directly purchasing and managing physical real estate properties. This type of REIT is designed to provide investors with income derived from the interest on mortgage loans rather than rental income from properties.

Mortgage REITs, also known as mREITs, lend money to real estate owners or provide financing for real estate through mortgage-backed securities. They earn income primarily from the interest payments on the loans they issue, which means their investment focus is on debt instruments secured by real estate rather than on the ownership and management of physical properties. This distinction is crucial in understanding the different types of REITs and their investment strategies.

In contrast, other types of REITs, such as equity REITs, invest primarily in generating rental income from owning and managing properties. Hybrid REITs incorporate aspects of both equity and mortgage REITs but do not focus exclusively on mortgages. Similarly, diversified REITs spread their investments across various property types, further differentiating them from mortgage-focused strategies. This alignment with mortgage lending sets Mortgage REITs apart as a distinct investment vehicle within the real estate investment trust landscape.