What is a "real estate investment trust" (REIT)?

A "real estate investment trust" (REIT) is fundamentally defined as a company that owns, operates, or finances income-producing real estate. This structure allows individual investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves.

REITs pool the capital of many investors to purchase a diversified portfolio of real estate assets, which can include apartments, hospitals, offices, hotels, and shopping centers, among others. By law, to qualify as a REIT, these companies must distribute at least 90% of their taxable income to shareholders in the form of dividends, making them attractive investment vehicles for those seeking income.

The other options do not accurately describe what a REIT is. While a private partnership investing in rental properties focuses on partnerships and individual rental units, it lacks the public aspect and the requirement to distribute income that defines REITs. Developing properties for short-term rentals is more about property management and construction than the ownership and operation of income-generating real estate as a collective investment structure. Similarly, while a fund that invests in stocks of real estate firms might be linked to the real estate market, it does not engage directly in owning or operating income-producing properties