REITs Explained: How Real Estate Investment Trusts Generate Passive Income
When you think of real estate investing, you might picture buying a house or apartment building. But there’s a simpler way: REITs, Real Estate Investment Trusts are companies that own and operate income-producing properties like apartments, malls, and warehouses, and are required to pay out at least 90% of their taxable income as dividends to shareholders. Also known as real estate mutual funds, REITs let you earn rental income without dealing with tenants, repairs, or mortgages. You buy shares like you would Apple or Tesla, and get paid every quarter—no property management needed.
REITs come in different flavors. Publicly traded REITs, listed on major stock exchanges like the NYSE, offer high liquidity and transparent pricing, while non-traded REITs, aren’t listed on exchanges and are harder to sell, but may offer higher yields. Then there are private REITs, typically available only to accredited investors and used in retirement accounts. Most investors stick with publicly traded ones because they’re easy to buy, sell, and track. They cover everything from warehouses (industrial REITs) to hospitals (healthcare REITs) and even cell towers (infrastructure REITs).
Why do people love REITs? Because they’re one of the few ways to get reliable, high-yield dividends without owning physical assets. In 2024, the average REIT paid a 4.5% dividend yield—nearly double the S&P 500’s average. Plus, they’re taxed differently than regular stocks: part of your dividend is a return of capital (tax-deferred), and the rest is treated as ordinary income or qualified dividends, depending on the source. That’s why they’re often paired with other income-focused assets like bonds or dividend stocks. They also help balance a portfolio. If the stock market drops, real estate can hold steady—or even rise, especially in inflationary times.
But REITs aren’t magic. Interest rates hurt them when they rise—higher borrowing costs mean lower profits. And not all REITs are created equal. A REIT focused on shopping malls might struggle if online retail keeps growing. One tied to data centers? That’s a different story. That’s why you need to look beyond the dividend number and ask: What kind of properties do they own? Who are their tenants? Are leases locked in for years? These are the questions the posts below will help you answer.
Below, you’ll find real examples of how people use REITs to build passive income, avoid common tax mistakes, and mix them into portfolios with ETFs and other assets. No fluff. Just clear, practical advice from people who’ve done it.
