What is the primary purpose of a real estate investment trust (REIT)?

The primary purpose of a real estate investment trust (REIT) is to enable individuals to invest in real estate typically offering dividends. REITs function as companies that own, operate, or finance income-producing real estate across a range of property sectors. By pooling funds from multiple investors, REITs offer a way to invest in large-scale, income-generating real estate without the need for substantial amounts of capital that direct property ownership would require.

Investors buy shares in the REIT, similar to purchasing stocks in a corporation, which makes it accessible for individual investors to participate in real estate investments. The structure of REITs mandates that they distribute a significant portion of their taxable income—usually at least 90%—in the form of dividends to their shareholders. This model not only provides regular income to investors but also allows them to benefit from the real estate market without the complexities and responsibilities of managing properties directly.

In contrast, managing rental properties directly for profit focuses more on the operational side of real estate, which is not the main function of a REIT. Conducting property appraisals and providing real estate education are more specialized aspects of the real estate industry that do not align with the primary investment and income-generating goal of a RE