What are REITs and property funds in the US, and what rules should beginners know?

By FastBuySale Newsroom · 5 Nov 2026 · 20m ago

Key REIT terms in plain English

REITs and property funds in the US let ordinary investors earn a share of the income from commercial real estate without buying a building themselves. Investor.gov, the SEC's investor education site, defines a real estate investment trust (REIT) as a company that owns, and in most cases operates, income-producing real estate or related assets, such as office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.

Unlike other real estate companies, a REIT does not develop properties to resell them. It buys and develops properties mainly to operate them as part of its own portfolio. Property funds, in the sense used here, are REIT mutual funds and REIT exchange-traded funds (ETFs) that hold many REITs at once.

REIT: a company that owns and usually operates income-producing real estate or real estate loans. Investors buy shares and receive a share of the income.

Publicly traded REIT: a REIT registered with the SEC and listed on a stock exchange. Its market price is readily accessible and you buy or sell shares through a broker, like any listed stock.

Non-traded REIT (non-exchange traded REIT): registered with the SEC but not listed on an exchange. Shares are bought through a broker that participates in the offering and are generally hard to sell.

REIT mutual fund and REIT ETF: pooled funds that hold shares of many REITs, giving spread across property types in one purchase. Investor.gov lists these as another way to invest in REITs.

Dividend yield: the income paid relative to the share price. Investor.gov notes some REITs may offer higher dividend yields than some other investments.

Funds from operations: the cash a REIT generates from running its properties. The SEC warns that non-traded REITs frequently pay distributions in excess of their funds from operations.

EDGAR: the SEC's public filings database, where you can verify a REIT's registration and read its annual and quarterly reports and offering prospectus.

Readers evaluating REITs should separate marketing claims from the actual rule text that governs their account or product. When two summaries disagree, the governing document or statute wins. If a rule depends on your age, filing status, or income band, re-check it when any of those facts change. Life events quietly move people across thresholds they last reviewed years earlier.

Educational explainers like this one cannot replace personalized advice for complex situations such as divorce orders, inherited accounts, or cross-border tax residency. Escalate those cases to a qualified professional. When in doubt about a number that changes every year, describe your plan qualitatively first, then look up the current official figure for the tax year you care about before you act.

Publicly traded vs non-traded REITs: the risks

Investor.gov says REITs offer a way to include real estate in a portfolio, but there are risks, especially with non-traded REITs. It highlights four:

Lack of liquidity: non-traded REITs are illiquid and generally cannot be sold readily on the open market. If you need cash quickly, you may not be able to sell.

Share value transparency: a listed REIT's price is easy to find, but it can be hard to value a non-traded REIT share. Non-traded REITs typically do not provide an estimate of value per share until 18 months after their offering closes, which may be years after you invested.

Distributions paid from offering proceeds and borrowings: non-traded REITs may use new investors' money or borrowed money to fund distributions. The SEC says this reduces the value of the shares and the cash available to buy more assets, and that publicly traded REITs typically do not do this.

Conflicts of interest: non-traded REITs typically have an external manager rather than their own employees, and may pay that manager significant fees based on property acquisitions and assets under management, which may not align with shareholders' interests.

Listed REITs and REIT funds avoid the liquidity problem, but their prices move with the market, so you can still lose money. Spreading money across asset types helps; see

A useful habit is to write down your goal, time horizon, and cash buffer before you change any election related to REITs. Decisions made during a stressful week are the ones people reverse later at a cost. Educational explainers like this one cannot replace personalized advice for complex situations such as divorce orders, inherited accounts, or cross-border tax residency. Escalate those cases to a qualified professional.

Compare fees the same way you would compare two similar listings before you buy: look at what you pay each year, what you get, and whether a simpler option meets the same need. Readers evaluating REITs should separate marketing claims from the actual rule text that governs their account or product. When two summaries disagree, the governing document or statute wins.

Fees and taxes on REITs

Publicly traded REITs: you can buy common stock, preferred stock or debt securities through a broker, and brokerage fees apply.

Non-traded REITs: typically sold by a broker or financial adviser, and Investor.gov says they generally have high up-front fees. Sales commissions and upfront offering fees usually total about 9 to 10 percent of the investment.

Worked example: on a $10,000 purchase, 9 to 10 percent upfront costs would be $900 to $1,000, so only about $9,000 to $9,100 goes to work. If the underlying assets later earned 5% a year, it would take around two years just to make up those costs. Model your own figures with the

Taxes: Investor.gov says shareholders pay taxes on the dividends and any capital gains they receive. REIT dividends are generally treated as ordinary income and are not entitled to the reduced tax rates on other types of corporate dividends. The SEC suggests consulting a tax adviser before investing. For capital gains basics, read

Inflation: rental income and property values may change with prices, but nothing guarantees a REIT keeps pace. Check real returns with the

Keep digital and paper copies of confirmations after every change. Screenshots of election pages, email receipts, and year-end statements make tax season and job changes far less chaotic. Compare fees the same way you would compare two similar listings before you buy: look at what you pay each year, what you get, and whether a simpler option meets the same need.

How to buy a REIT safely: a checklist

1. Decide whether you need to be able to sell quickly. If yes, a listed REIT or a REIT fund is generally more suitable than a non-traded REIT.

2. Check registration. Investor.gov warns to be wary of anyone selling REITs that are not registered with the SEC; verify both listed and non-traded REITs on EDGAR.

3. Read the filings: annual and quarterly reports and the offering prospectus, including how distributions are funded.

4. Check the seller. The SEC advises researching the broker or investment adviser who recommends a REIT.

5. Add up all fees, including commissions and any upfront offering costs.

6. Compare with owning property directly. Buying a home or rental involves a mortgage, maintenance and concentration in one asset; estimate repayments with the and see for how listed shares work.

Found this REITs explainer useful? Share it with a friend, tell us what we missed in the comments, and get the FastBuySale app on Google Play () for more guides. Have something to sell? Post a free listing at in a couple of minutes.

If a rule depends on your age, filing status, or income band, re-check it when any of those facts change. Life events quietly move people across thresholds they last reviewed years earlier. Automation helps. Calendar reminders for annual reviews, automatic transfers, and beneficiary checkups reduce the chance that a good plan dies from neglect.

💬 Join the discussion on this article →

More in Finance · Trending News · Browse local deals