REIT

A REIT is a company that owns or finances income property and must pay out most profit as dividends.

A quick example

Picture this

Rates are low and an apartment REIT yields 3.5%, comfortably above the 1.5% on 10-year Treasuries, so investors buy it for income. Then the central bank hikes rates sharply: Treasuries now yield 5%, the REIT’s borrowing costs rise, and its share price falls 25% even though rents and dividends hold steady. The yield on the lower price now competes with bonds again. The scenario is why REITs are called bond proxies — they get hit twice by rising rates, once on financing and once on relative appeal.

What it means for you

It lets you own real estate yield without buying buildings.

How to apply it

Use REITs as an income and diversification sleeve, not a growth engine. Compare funds by yield, occupancy, and debt levels, and expect them to be bumpier than their dividends suggest.

Common mix-ups

Rates matter: rising rates can pressure REIT prices even as dividends hold.

Key takeaway

A REIT delivers real-estate income with stock-like liquidity, and the price you pay is interest-rate sensitivity. Because the structure must pay out most of its income, REIT yields run high — but rising rates hit them twice, once on financing costs and once on relative appeal versus bonds. Use REITs as an income and diversification sleeve, not a growth engine, and compare funds by yield, occupancy, and debt. The dividend is real; the price will still swing.

Definitions reviewed by the Investing Glossary editorial team.