Real Estate Investment Trusts are investment vehicles that invest in commercial real estate or real estate-related debt. The structure has been around since the early 1960s, and was developed as a way to allow individual investors access to large-scale, income-producing real estate. To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate, and it must distribute at least 90% of its taxable income to shareholders annually in the form of a dividend. Qualifying as a REIT allows a company to deduct the distribution paid to shareholders from its corporate taxable income. Because of this special tax treatment, most REITs aim to pay out at least 100% of their taxable income to shareholders.
REITs may either be public investment vehicles registered with the SEC or they can be private placement REITs. Individual REITs can either be traded on an exchange or choose to be non-listed, and therefore non-traded. The primary difference between publicly traded and non-traded is that publicly traded REITs trade daily on a national exchange. This gives investors greater liquidity, along with higher volatility. There are other key differences in addition to the trading aspect.