REITs

A REIT pools money from many investors to buy real estate such as office buildings, retail space, and warehouses, then distributes the rental income to shareholders. Because REITs trade on an exchange like stocks, you can invest in property with a small amount rather than buying a whole building.

Their defining feature is the payout. Rules require REITs to distribute the large majority of taxable income to shareholders, so instead of hoarding cash they pay it out regularly. That makes them popular with people who want cash arriving monthly or quarterly.

Compared with owning property directly, the tradeoffs are clear. There are no acquisition taxes or broker fees, you can start with a very small sum, and you can sell whenever the market is open, which is a major liquidity advantage. On the other hand you do not choose or manage the buildings, and you pay the manager a fee.

Know the risks. REITs typically buy properties with substantial debt, so rising interest rates both raise their borrowing costs and weigh on property values, which is why REIT prices often fall hard in tightening cycles. Their character also depends entirely on what they hold, whether offices, retail, or logistics. Look past the label at the actual portfolio, the vacancy rate, and the leverage.