How REITs Work
A real estate investment trust lets you own a slice of office towers, warehouses, apartments or cell towers by buying a stock. Here is how REITs are structured, the rules they follow and why they pay such large dividends.
Real estate you can buy with one click
A REIT is a company that owns, operates or finances income-producing real estate. Congress created the structure in 1960 so ordinary investors could own large, professionally managed properties. Most REITs trade on stock exchanges just like any other share.
The rules that define a REIT
- Pay out at least 90% of taxable income to shareholders as dividends.
- Hold at least 75% of assets in real estate, cash or government securities.
- Earn at least 75% of gross income from real estate, such as rents or mortgage interest.
- In return, the REIT generally pays no corporate income tax on the income it distributes.
What REITs own
| Property type | Example | Dividend yield |
|---|---|---|
| Warehouses and logistics | Prologis (PLD) | About 3.2% |
| Cell towers | American Tower (AMT) | About 3.9% |
| Data centers | Equinix (EQIX) | About 2.0% |
| Shopping malls | Simon Property (SPG) | About 4.4% |
| Self-storage | Public Storage (PSA) | About 4.1% |
| Single-tenant retail (net lease) | Realty Income (O) | About 5.5% |
In our data as of Sept. 17, 2026.
How REIT dividends are taxed
Most REIT dividends are not “qualified” dividends, so they are generally taxed at ordinary income rates. However, individual investors can usually deduct up to 20% of qualified REIT dividends, a deduction made permanent in 2025. Holding REITs in a tax-advantaged account, like an IRA, avoids the yearly tax altogether.
Where you hold an investment changes how it is taxed.
Key takeaways
- REITs let investors own large properties through a stock.
- They must pay out at least 90% of taxable income.
- REITs own everything from warehouses to cell towers.
- Most REIT dividends are taxed as ordinary income, with a partial deduction.