What are the Different Types of REITs? (2024)

FAQs

How many types of REIT are there? ›

By putting money into REITs, an investor can also help a community grow and thrive. In this guide, learn about the two different types of REITs—equity REITs and real estate development and management REITs—as well as their sectors.

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

The potential downsides, or CONS, of a REIT investment include the fact that they are taxed as income, the variation in the fee structures of different managers, and market volatility due to interest rate movements or trends in the real estate market.

Buffet and REITs

However, Berkshire sold its holdings of STORE Capital in 2022 after the company announced it was being acquired by two outside investment funds. Since then, filings have shown that Berkshire Hathaway has not owned shares of any other REIT.

Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.

Investing in REITs: How to get started

Then you'll be able to buy and sell publicly traded REITs just like you would any other stock. Because REITs pay such large dividends, it can be smart to keep them inside a tax-advantaged investment account like a Roth IRA to get the best possible tax treatment.

How to buy REITs for beginners? ›

As referenced earlier, you can purchase shares in a REIT that's listed on major stock exchanges. You can also buy shares in a REIT mutual fund or exchange-traded fund (ETF). To do so, you must open a brokerage account. Or, if your workplace retirement plan offers REIT investments, you might invest with that option.

To qualify as a REIT a company must: Invest at least 75% of its total assets in real estate. Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate.

The two main types of REITs are equity REITs and mortgage REITs, commonly known as mREITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. mREITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.

Some of the main risk factors associated with REITs include leverage risk, liquidity risk, and market risk.

A REIT is a type of company, or more accurately, a trust, that invests in a portfolio of real estate like apartment buildings, shopping centers, hospitals, and hotels. Investors can participate in the gains and losses of the portfolio by buying shares of a REIT.