What is a real estate investment trust (REIT)?

A real estate investment trust (REIT) is correctly defined as a company that owns and operates income-producing real estate. This investment vehicle allows individuals to invest in large-scale, income-generating real estate without having to buy or manage properties directly. A REIT typically invests in a diversified portfolio of real estate assets, such as apartment buildings, shopping centers, office buildings, and hotels, and earns income primarily through leasing space and collecting rents.

One of the key characteristics of a REIT is that it must distribute at least 90% of its taxable income to shareholders in the form of dividends, which makes them a popular choice for investors seeking regular income. By providing a way to invest in real estate with relatively low capital requirements, REITs have democratized access to real estate investment for individual investors, allowing them to participate in the market without the complexities of property management.

The other options do not accurately capture the nature of a REIT. For instance, while some financial institutions offer loans for real estate purchases, that is not the function of a REIT. Similarly, a trust managing private homeowner investments does not reflect the commercial focus of a REIT, and while REITs can invest in commercial properties, they are not limited to that