What Is a REIT and How Does It Work? A Plain-English Guide

Key takeaways

• A REIT is a company, and you own shares in it. You don't own the buildings directly. The company owns them, or lends against them, and you share in the income.
• Federal tax law sets the rules. A REIT must earn most of its income from rent, mortgage interest and similar sources, hold mostly real estate assets, and pay out at least 90% of its taxable income as dividends.
• There are three main types. Equity REITs own property and collect rent. Mortgage REITs lend money or buy mortgage securities and earn interest. Hybrid REITs do both.
• REIT shares can be listed on a stock exchange, registered with the SEC but not listed, or private. Each kind trades off liquidity, fees and price swings differently.
• REIT dividends are generally taxed as ordinary income, but part of them can qualify for a 20% deduction. REIT shares are stock, so they aren't real property for a 1031 exchange.
• REIT prices and dividends can fall. Distributions are not guaranteed, and you can lose some or all of what you invest.

What is a REIT, in plain English?

Let me start with the simplest version and add detail one piece at a time.

A real estate investment trust, or REIT (pronounced "reet"), is a company that owns or finances real estate that produces income. Think apartment buildings, warehouses, shopping centers, hospitals, office towers and cell towers. Some REITs don't own buildings at all. They lend money to people who do.

You invest in a REIT by buying its shares. A share is a small unit of ownership in a company. When the REIT collects rent or interest, it pays most of that money out to shareholders as dividends. A dividend is a cash payment a company makes to its owners.

The SEC's investor bulletin on REITs puts the purpose plainly: "Congress established REITs in 1960 to allow individual investors to invest in large-scale, income-producing real estate," according to the SEC's Office of Investor Education and Advocacy. Most people can't buy a $200 million office tower or a portfolio of 50 warehouses. With a REIT, you can own a sliver of one.

Here's the part that makes a REIT different from an ordinary company. A REIT gets special tax treatment. A regular corporation pays corporate income tax on its profits, and then its shareholders pay tax again on the dividends. A REIT can generally deduct the dividends it pays. So if it pays out all its taxable income, it owes little or no corporate income tax on that income. The tax happens mostly at the shareholder level.

That tax break comes with strings. The company has to meet a long list of rules in 26 U.S.C. §856 and §857 of the Internal Revenue Code. Those rules decide what a REIT can own, where its income can come from, and how much it must pay out. Almost everything about how a REIT behaves traces back to them.

I'm Jerry Baker, the founder of Baker 1031 Investments, and my background is in real estate acquisitions, management and development. REITs matter to 1031 and DST investors because some DSTs end in a REIT. My firm offers Delaware Statutory Trust (DST) interests and DST programs with 721 paths. We don't sell REIT shares. This guide is education, not a recommendation to buy or sell any REIT.

How does a REIT work?

A REIT works a lot like a landlord or a lender that happens to be owned by thousands of shareholders. Here's how the money moves.

Step 1: The REIT raises money

A REIT raises money by selling shares to investors. It usually borrows money too, through loans or bonds. Together, that capital pays for the real estate or the loans it holds.

Step 2: It buys or finances real estate

An equity REIT buys properties. A mortgage REIT makes real estate loans or buys mortgage-backed securities, which are bonds backed by pools of home or commercial loans. Either way, the REIT is meant to hold what it buys. The SEC's 2011 bulletin says a REIT must acquire and develop its properties "primarily to operate them as part of its own investment portfolio, as opposed to reselling those properties after they have been developed."

Step 3: It collects income

Property REITs collect rent from tenants. Mortgage REITs collect interest from borrowers. The SEC's bulletin on publicly traded REITs says REITs "often generate income based on the regular rents received on their property holdings."

Step 4: It pays its bills

Out of that income, the REIT pays interest on its own debt, property costs it is responsible for, management salaries or fees, and other overhead. Some REITs have their own employees. Others are run by an outside company, called an external manager, that charges fees.

Step 5: It pays dividends

What's left, at least 90% of its taxable income, generally goes to shareholders. The REIT can deduct those dividends from its taxable income. Any taxable income it keeps is taxed at regular corporate rates, which 26 U.S.C. §11 sets at 21%.

Step 6: Shareholders pay tax on what they receive

You report the dividends on your own tax return. Each year, the REIT or your broker sends you a Form 1099-DIV. It splits your payments into types that are taxed differently. I cover that in more detail below.

What a REIT can't do

A REIT is not a pass-through entity like a partnership. The SEC's bulletin notes that "a REIT cannot pass any tax losses through to its investors." If a REIT loses money on paper, that loss stays inside the company. This is different from owning a rental yourself, or owning a DST interest, where depreciation and losses show up on your own return.

What rules does a company have to meet to be a REIT?

You don't need to memorize the tax code to invest in a REIT. But knowing the rules helps you understand why REITs act the way they do. Here they are in plain English.

Who can own it and how it is organized

Under Section 856(a), a REIT is a corporation, trust or association that:

1. Is managed by one or more trustees or directors.
2. Has ownership shown by transferable shares or transferable certificates.
3. Would be taxed as a domestic corporation if not for the REIT rules.
4. Is not a bank or other listed financial institution, and not an insurance company.
5. Is owned by 100 or more persons.
6. Is not "closely held."
7. Meets the income and asset tests.

The ownership rules have details. The Treasury regulation at 26 CFR §1.856-1 says the 100-person test must be met for at least 335 days of a 12-month tax year. It also explains the closely held test. A REIT fails it if, at any time in the last half of its tax year, more than 50% of its stock by value is owned by or for five or fewer individuals. The IRS's instructions for Form 1120-REIT note that a new REIT doesn't have to meet the 100-person and closely held tests until its second tax year.

Why do these rules exist? They keep a REIT from being a private tax shelter for one family. The point is broad ownership.

Where its income comes from: the 75% and 95% tests

Section 856(c) sets two income tests. Both are measured each year.

• The 75% test. At least 75% of the REIT's gross income must come from real estate sources. Those include rents from real property, interest on loans secured by real property, gains from selling real property, and dividends from other REITs.
• The 95% test. At least 95% of gross income must come from the real estate sources above plus other passive sources, such as ordinary dividends and interest.

In plain terms, a REIT has to earn its money mostly as a landlord or a real estate lender. It can't run a big side business that sells services to the public.

"Rents from real property" has its own definition. Rent for furniture or equipment counts only if it is no more than 15% of the total rent under the lease. Services also matter. A REIT can generally provide the kind of services a landlord customarily provides, but not much more.

What it owns: the asset tests

Section 856(c)(4) sets asset tests that are checked at the end of each quarter.

• At least 75% of the REIT's total assets must be real estate assets, cash and government securities.
• No more than 25% can be other securities.
• Outside of those real estate assets and certain subsidiaries, no more than 5% of total assets can be in one company's securities. The REIT also can't own more than 10% of that company's voting power or more than 10% of its securities by value.

"Real estate assets" includes more than buildings. Under Section 856(c)(5)(B), it includes interests in real property, mortgages on real property, and shares in other REITs. That's how a mortgage REIT can qualify while owning almost no buildings.

How much it pays out: the 90% rule

Under Section 857(a)(1), a REIT's dividends for the year must generally equal at least 90% of its REIT taxable income, not counting net capital gain. The statute uses the words "equal or exceed."

If a REIT pays out less than all of its taxable income, it owes regular corporate tax on what it keeps. It may also owe a 4% excise tax on undistributed income under section 4981, which it reports on Form 8612, according to the IRS's Form 1120-REIT instructions.

That's why REITs are known for dividends. It isn't a choice they make for marketing reasons. It is the price of the tax status.

Why REITs buy and hold

A REIT that sells property it held mainly for sale to customers owes a tax equal to 100% of the net income from that sale. Section 857(b)(6) calls these "prohibited transactions." The rule pushes REITs toward holding property for income, not flipping it.

The taxable REIT subsidiary

What if a REIT wants to offer services that aren't customary, or earn income from a hotel? It can use a taxable REIT subsidiary, or TRS. A TRS is a regular corporation owned by the REIT. It pays corporate tax on its own income, so it can do things the REIT itself can't. For a hotel or senior housing property, the REIT can lease the property to its TRS, as long as an outside operator called an eligible independent contractor runs it. My guide to REIT sectors explains that structure.

The code limits how much of a REIT's assets can be TRS securities. Under Section 856(c)(4)(B)(ii), for tax years beginning after December 31, 2025, no more than 25% of the value of a REIT's total assets can be securities of taxable REIT subsidiaries. The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) raised the limit from 20%. That 20% limit applied for tax years beginning after December 31, 2017 through 2025, according to the IRS's Form 1120-REIT instructions.

A worked example: the REIT rules in numbers

This is a hypothetical example with round numbers. It doesn't describe any real REIT or offering, and the figures are not typical of any REIT. It's here only to show how the tests work.

Say a REIT, which I'll call REIT A, has $50,000,000 of gross income for the year. Here's where it came from:

Checking the income tests

• 75% test: $46,000,000 ÷ $50,000,000 = 92%. That passes.
• 95% test: $48,500,000 ÷ $50,000,000 = 97%. That passes too.

Now change one number. Say the fee business grows to $3,000,000, and everything else stays the same. Total income becomes $51,500,000. The 95% test is now $48,500,000 ÷ $51,500,000, or about 94.2%. REIT A would fail. This is why REITs often push service businesses into a taxable subsidiary.

Checking the payout

Say REIT A's taxable income for the year, before its dividend deduction and not counting capital gains, is $20,000,000. The 90% rule means it must pay at least $18,000,000 in dividends.

• If it pays $20,000,000, it deducts the full amount and owes no corporate income tax on that income.
• If it pays $18,000,000, it keeps $2,000,000. That $2,000,000 is taxed at the 21% corporate rate, which is $420,000. Because it paid out more than 85% of its income, it generally wouldn't owe the separate 4% excise tax in this example. Under 26 U.S.C. §4981, that tax applies when a REIT distributes less than 85% of its ordinary income plus 95% of its capital gain net income for the calendar year.

You can see why most REITs pay out close to all of their taxable income. Holding money back costs them tax.

What reaches a shareholder

Say you own 1,000 shares, and REIT A pays a hypothetical $1.00 per share for the year. You receive $1,000. Your Form 1099-DIV might show:

• $700 of ordinary dividends that are also "Section 199A dividends"
• $100 of capital gain distributions, from property the REIT sold
• $200 of nondividend distributions, often called return of capital

If you're in the 37% federal bracket, the top rate for 2026 under Revenue Procedure 2025-32, the $700 of Section 199A dividends would generally be taxed like this: $700 minus a 20% deduction is $560, and $560 × 37% is $207.20. The $100 of capital gain distributions is taxed at long-term capital gain rates. The $200 return of capital isn't taxed now, but it lowers your cost basis in the shares, which is generally what you paid for the shares, used to figure your gain when you sell. State taxes and other federal taxes may apply. Your CPA should run your real numbers.

Types of REITs: equity, mortgage and hybrid

The SEC and FINRA both group REITs into three types by what they own. Each one earns money differently and carries different risks.

Equity REITs

FINRA's REIT investor guide says equity REITs "typically own and operate income-producing real estate." The SEC's 2011 bulletin says, "Most REITs are equity REITs."

An equity REIT earns money mainly from rent. Its income rises or falls with occupancy, rents and costs. Its value rises or falls with the value of its properties, its debt, and how the stock market prices it.

The SEC's 2016 bulletin notes that "Most REITs specialize in a single type of real estate." One equity REIT might own only apartments. Another might own only warehouses or self-storage. My REIT sectors guide explains how each property type earns money, including cell tower and other infrastructure REITs, and its specific risks.

Mortgage REITs

A mortgage REIT, or mREIT, doesn't own buildings for rent. The SEC's 2011 bulletin says mortgage REITs "provide money to real estate owners and operators either directly in the form of mortgages or other types of real estate loans, or indirectly through the acquisition of mortgage-backed securities."

A mortgage REIT earns the difference between the interest it collects and its own cost of borrowing. That difference is called the spread. Say, hypothetically, a mortgage REIT borrows at 5% and holds loans paying 7%. The 2-point spread, after costs and losses, is its profit.

The SEC's bulletin warns that "Mortgage REITs tend to be more leveraged (that is, they use a lot of borrowed capital) than equity REITs." Leverage means using borrowed money. It can make gains bigger, and it can make losses bigger too. The SEC's 2016 bulletin adds that many mortgage REITs manage interest rate and credit risks with derivatives and other hedging techniques, and that "There are investment risks to these leveraging and hedging strategies."

Mortgage REITs come in two broad flavors. Some focus on home loans, often through mortgage-backed securities. Others focus on commercial loans for offices, apartments, hotels and other income property. The risks differ. Residential mREITs can be especially sensitive to interest rate moves and to borrowers paying off loans early. Commercial mREITs can be especially sensitive to borrowers who stop paying.

Hybrid REITs

A hybrid REIT does both. FINRA says hybrid REITs "use investment strategies of both equity REITs and mortgage REITs." The mix can change over time, so read how a hybrid REIT divides its assets before you assume it behaves like either type.

The three types side by side

Listed, unlisted and private: how REIT shares are sold

The type of REIT tells you what it owns. How its shares are sold tells you how easily you can get in and out, what you'll pay, and who regulates it. FINRA's guide describes three groups.

Publicly traded REITs

FINRA says these "are bought and sold by investors on national securities exchanges." They are registered with the SEC and file regular reports. Investor.gov notes that "Publicly traded REITs can be purchased through a broker."

The trade-off is price movement. FINRA says listed REITs "tend to be more liquid but also more prone to price swings (volatility)." Liquid means you can sell quickly at a known price. Volatility means the price moves up and down a lot. A listed REIT's share price can drop sharply in a market sell-off, even if its buildings are still collecting rent.

Public non-traded REITs

These are registered with the SEC but not listed on an exchange. They're sold through broker-dealers who take part in the offering. I go deeper on them in my guide to non-traded REITs. Here are the basics regulators stress.

• Limited liquidity. The SEC's bulletin on non-traded REITs says they "are illiquid investments, which mean that they cannot be sold readily in the market." It warns that a liquidity event "might not occur until more than 10 years after your investment."
• Redemption limits. Many offer to buy back shares, but the SEC notes those programs can be "discontinued at the discretion of the REIT without notice."
• Fees. That 2015 bulletin says up-front fees "can represent up to 15 percent of the offering price." Investor.gov's current REIT page says sales commissions and up-front fees "usually total approximately 9 to 10 percent of the investment."
• Distributions. The SEC warns that non-traded REITs "may use offering proceeds, which includes the money you invested, and borrowings to pay distributions."
• Valuation. There's no market price. Values come from appraisals, which the SEC says "may not be accurate or timely."

FINRA's guide explains that some non-traded REITs, called NAV REITs, offer to sell and redeem shares based on their latest net asset value, or NAV. NAV is the estimated value of everything the REIT owns, minus what it owes, divided by the number of shares. It comes from appraisals, not trades.

Private REITs

FINRA says "Private REITs are neither regulated by the SEC nor traded on national exchanges." They are "primarily sold to institutional or accredited investors." An accredited investor is a person who meets income, net worth or license tests set by the SEC. Private REITs usually share less information than public ones.

How the three compare

You can also own REITs indirectly. The SEC's 2011 bulletin notes that you can buy a REIT mutual fund or a REIT exchange-traded fund. A mutual fund pools money from many investors to buy a basket of securities. An exchange-traded fund, or ETF, does the same but trades on an exchange like a stock.

How REIT shares compare with owning a rental

When people ask about "REITs real estate," they often mean, "Is owning REIT shares like owning property?" It is, in some ways. It isn't, in others.

The big gap is tax. A rental can be real property for a 1031 exchange, and a DST interest can qualify as replacement property. REIT shares cannot. My DST vs. REIT comparison walks through that difference with numbers.

How REIT income reaches your tax return

REIT dividends work differently from most stock dividends. Here's the short version. My guide to REIT dividends and taxes goes much deeper.

Most REIT dividends are ordinary income

Investor.gov's REIT page says "Dividends paid by REITs generally are treated as ordinary income and are not entitled to the reduced tax rates on other types of corporate dividends." That's because the REIT generally didn't pay corporate tax on that income.

Part may qualify for a 20% deduction

Under 26 U.S.C. §199A, you may deduct 20% of your "qualified REIT dividends." A qualified REIT dividend is one that is not a capital gain dividend and not qualified dividend income. The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) removed the provision that would have ended this section after 2025, starting with tax years beginning after December 31, 2025. Under the Treasury regulation at 26 CFR §1.199A-3, a dividend doesn't count if you held the shares for 45 days or less during the 91-day period that starts 45 days before the ex-dividend date (the first day a buyer of the shares no longer gets that dividend).

The boxes on Form 1099-DIV

The IRS's Form 1099-DIV instructions show where each type lands.

Two quirks to know

• Year-end dividends. A dividend declared in October, November or December and paid the next January is generally treated as paid on December 31. Section 857(b)(9) sets this rule. So a January check can belong on last year's return.
• Capital gain dividends. When a REIT sells property at a gain, it can designate part of its dividends as capital gain dividends. Shareholders treat them as long-term gain, under Section 857(b)(3).

How REITs are measured: a few numbers to know

You'll see a handful of numbers whenever you read about a REIT. You don't need to calculate them, but you should know what they mean.

• Funds from operations, or FFO. This is an industry measure of a REIT's operating cash flow. It generally starts with net income, adds back real estate depreciation, and removes gains and losses from property sales. Depreciation is an accounting expense that can make a REIT's net income look lower than its cash flow.
• Adjusted funds from operations, or AFFO. This version subtracts recurring capital spending, such as new roofs and tenant improvements. Each REIT can define it differently.
• Dividend yield. The annual dividend divided by the share price. A high yield can mean the price fell, and it says nothing about whether the dividend will continue.
• Payout ratio. Dividends divided by FFO or AFFO. Paying out more than the REIT earns isn't sustainable for long.
• Leverage. How much the REIT has borrowed compared with its assets or cash flow.
• Occupancy. The share of space or units that are leased.

The SEC's 2011 REIT bulletin raises a specific warning here. It says non-traded REITs "frequently pay distributions in excess of their funds from operations." That means some of the cash may come from new investors' money or from borrowing. My guide on how to evaluate a REIT walks through how to read these figures.

REIT investing for beginners: how to get started, step by step

Here's a simple process if you're new to REITs. It isn't a recommendation to buy any REIT. It's a way to think before you act.

Step 1: Decide what job the money has

Are you after income, long-term growth, or diversification away from the stock market? Do you need the money back in two years or 20? Listed REITs can be sold quickly but can swing in price. Non-traded and private REITs can't be sold easily. Your timeline narrows the choices fast.

Step 2: Decide on the account

Where you hold REIT shares matters for tax. Because most REIT dividends are taxed at ordinary rates, some investors hold them in tax-advantaged retirement accounts. Others hold them in taxable accounts to use the 20% deduction. That decision belongs with your CPA.

Step 3: Pick the type and how it's sold

Choose between equity, mortgage and hybrid REITs. Then choose between listed, non-traded, private, or a fund that holds many REITs. Each choice changes your risk, your costs and your ability to sell.

Step 4: Pick the sector

Apartments, warehouses, hospitals, data centers and self-storage all earn rent in different ways. Each has its own risks. Understand the sector before you look at any single REIT.

Step 5: Read the filings

Investor.gov says you can verify a REIT's registration and read its annual reports, quarterly reports and offering prospectus through the SEC's EDGAR system. A prospectus is the legal document that describes a public offering, its fees and its risks. Read the risk factors and the fee section first.

Step 6: Check the person selling it

Investor.gov warns: "Be wary of any person who attempts to sell REITs that are not registered with the SEC." The SEC's non-traded REIT bulletin adds that if the seller isn't registered, "it could be a red flag for fraud." Check both the product and the person.

Step 7: Start small and keep records

Keep every Form 1099-DIV. Track your cost basis, especially if you receive return of capital, since it lowers your basis each year. Good records save your CPA time when you sell.

Step 8: Confirm with your CPA and a financial professional

Talk with your CPA about taxes and with a registered financial professional about fit. If the money comes from selling investment property, talk with your qualified intermediary, the independent company that holds your sale proceeds during a 1031 exchange, before the sale closes.

Where do REITs fit for 1031 and DST investors?

Real estate owners often ask this. Say you've sold, or are about to sell, a rental. You like the idea of a REIT's diversification and professional management. Can you just buy REIT shares with the proceeds?

Stock is not real property

A 1031 exchange lets you sell investment real estate and buy other investment real estate while deferring the capital gains tax. Section 1031 applies only when real property is exchanged "solely for real property of like kind." REIT shares are stock, so buying them doesn't count as replacement property. Paying tax on the gain generally comes first. My guide on whether you can 1031 into a REIT covers the details and the workarounds.

The DST path

A Delaware Statutory Trust, or DST, is a trust that owns real estate. Many investors each hold a slice. A DST interest can qualify as replacement property in a 1031 exchange if the trust is set up correctly and the other 1031 rules are met. My DST guide explains how they work.

DSTs come with real limits. They're illiquid, so you generally can't cash out until the property sells. You have very little control. Distributions are not guaranteed, and you can lose your entire investment. Most DSTs are sold only to accredited investors through a private placement memorandum, or PPM. A PPM is the offering document for a private securities offering.

How some DST investors end up owning REIT units

Many REITs are set up as UPREITs, short for umbrella partnership REITs. The REIT owns its buildings through an operating partnership, or OP. That's a partnership the REIT controls. The OP can issue OP units, which are partnership interests usually designed to track the REIT's shares in value and distributions.

A 721 exchange uses Section 721 of the tax code to let someone contribute property to a partnership for an interest in it, generally without current tax. Some DSTs are sponsored by firms tied to a REIT. After a holding period, the REIT's operating partnership may acquire the DST's property in return for OP units. That's how a DST investor can end up holding REIT units with the gain still deferred.

It's a one-way door. OP units can't be exchanged under Section 1031, and turning them into cash or REIT shares is generally taxable. My 721 exchange guide explains the trade-offs step by step.

Here's my view, plainly. If you've just sold property and want REIT-style diversification, don't treat REIT shares and DSTs as interchangeable. One keeps a 1031 going. The other generally requires paying the tax first. The 721 path sits in between, and it fits some people and not others.

Mistakes to avoid with REITs

These are common mistakes. Each is easy to avoid if you know about it.

1. Buying for the yield alone. A high dividend yield can mean the share price fell for a reason. It can also mean the dividend is about to be cut. Distributions are not guaranteed.
2. Assuming "real estate" means "steady." Listed REIT prices can swing like other stocks. FINRA notes that changes in interest rates, property values and the economy can all affect REIT returns.
3. Treating a non-traded REIT like a listed one. Redemption programs have limits and can be suspended. Plan as if you may not get your money back on your schedule.
4. Ignoring where the distribution came from. Part of a payout can be return of capital, or be funded by borrowing or new investors' money. Read the filings.
5. Ignoring fees. Up-front commissions and ongoing advisory fees on some REITs can be substantial. Compare total costs before you buy.
6. Using REIT shares as 1031 replacement property. They don't qualify. A purchase with exchange proceeds can make the whole gain taxable.
7. Concentrating in one REIT or one sector. Even a large REIT is one management team and, often, one property type.
8. Forgetting the tax form. Most REIT dividends are ordinary income. Plan the account and the tax with your CPA before you invest.
9. Confusing a mortgage REIT with an equity REIT. They react to very different risks. Know which one you own.
10. Buying from an unregistered seller. Verify both the REIT and the person through the SEC's EDGAR system and the regulators' databases.

Risks to weigh before you buy REIT shares

Every REIT carries risk. FINRA's guide says all REITs carry "the risk that your investment could lose some or all of its value." Here are the main ones.

• Market risk. Listed REIT shares can fall sharply with the stock market.
• Interest rate risk. The SEC's 2016 bulletin says "REIT investments may be sensitive to a changing interest rate environment." Higher rates can raise a REIT's borrowing costs and change how investors value its dividends.
• Property and tenant risk. Vacancies, tenant bankruptcies and rising costs can reduce income.
• Leverage risk. Debt magnifies losses. Mortgage REITs often use a lot of it.
• Liquidity risk. Non-traded and private REITs may be hard or impossible to sell when you want.
• Fee and conflict risk. The SEC notes that many non-traded REITs are externally managed. Their managers may be paid "significant fees" and may run other companies that compete with the REIT.
• Distribution risk. Dividends can be cut or stopped. Distributions are not guaranteed.
• Tax-status risk. A REIT that fails the tests can lose its tax status. Then it would owe corporate tax on its income.
• Tax-law risk. The rules on REITs and REIT dividends can change.

A short REIT glossary

What my data shows

My data covers DSTs, not REITs. But it shows how many DST offerings include a path into a REIT. Here's what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. These figures describe the offerings I track. They aren't a forecast, and they say nothing about how any REIT or DST will perform.

Many DSTs include a path into a REIT

The most relevant number for this guide is the 721 exit. In my offering records as of October 2026, 44 offerings (58%) include an optional 721 exit into a REIT's operating partnership, and 13 (17%) make it mandatory. Another 17 (22%) have no 721 exit, and 2 are unclear.

For a DST investor, those counts are a reminder to learn how REITs work before buying. If an offering has a 721 exit, you may one day hold units in a REIT's operating partnership. If it's mandatory, you generally don't get to choose cash instead if the sponsor carries out the exchange.

The property types behind those offerings

My offering records as of October 2026 also show which property types DST sponsors are offering. These are the same kinds of property that equity REITs own.

A single DST usually holds one property type, often in one market. An equity REIT usually holds many properties, often in one sector. Both can be concentrated, just in different ways.

Minimums

In my offering records as of October 2026, the median minimum investment for a DST is $100,000. Listed REIT shares can be bought one share at a time. That gap can be one reason people with smaller amounts, or money outside a 1031 exchange, look at REITs instead. When we talk, I can walk you through the DST offerings I currently have available, including which ones have a 721 feature. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC.

Frequently asked questions

What does REIT stand for?

REIT stands for real estate investment trust. It's a company that owns or finances income-producing real estate and meets the tax rules in Sections 856 and 857 of the Internal Revenue Code.

When were REITs created?

Congress established REITs in 1960, according to the SEC's 2011 REIT bulletin. The SEC says the goal was "to allow individual investors to invest in large-scale, income-producing real estate."

How do REITs make money?

Equity REITs make money mainly by collecting rent from tenants. Mortgage REITs earn interest on real estate loans and mortgage-backed securities. Both can also earn gains when they sell assets.

Why do REITs pay such large dividends?

Federal law requires a REIT to pay dividends equal to at least 90% of its taxable income, not counting net capital gain. Income it keeps is taxed at corporate rates, so most REITs pay out close to all of it.

What is a hybrid REIT?

A hybrid REIT owns some properties and also holds real estate loans or mortgage-backed securities, so it earns both rent and interest. That gives it a blend of equity REIT and mortgage REIT risks. The mix can change over time, so check how its assets are divided in its filings.

What is the difference between an equity REIT and a mortgage REIT?

An equity REIT owns buildings and earns rent. A mortgage REIT lends money or buys mortgage-backed securities and earns interest. The SEC notes that mortgage REITs tend to use more borrowed money than equity REITs.

Do all REITs trade on a stock exchange?

No. Some are listed and trade every market day. Others are registered with the SEC but not listed, and private REITs aren't registered at all and are mainly sold to institutions or accredited investors.

How much money do I need to start investing in REITs?

For a listed REIT, the cost of one share is the minimum. REIT mutual funds and ETFs also let you start small. Non-traded and private REITs set their own minimums in their offering documents.

Can a REIT lose money?

Yes. Share prices can fall, dividends can be cut, and you can lose some or all of your investment. FINRA notes that interest rates, property values and the economy can all affect REIT returns.

Is owning a REIT the same as owning real estate?

Not for tax purposes. You own stock in a company, so you get a Form 1099-DIV and no depreciation on your own return. REIT shares also can't be 1031 replacement property, while a rental or a DST interest can qualify.

How can I check whether a REIT is legitimate?

Investor.gov says you can verify a REIT's registration and read its reports through the SEC's EDGAR system. Also confirm that the person selling it is registered. Be cautious of anyone selling a REIT that isn't registered with the SEC.

What happens if a company fails the REIT tests?

A company that doesn't meet the rules in Sections 856 and 857 isn't a REIT for that year. It would then be taxed like a regular corporation, which means corporate income tax on its taxable income. That's why REITs watch the income, asset and payout tests closely.

Before you act

This guide is for education only. It isn't tax, legal or investment advice, and it isn't a recommendation to buy or sell any security. Please confirm any decision with your CPA, your attorney and, if you're selling property, your qualified intermediary.

Sources

• 26 U.S.C. § 856, Definition of real estate investment trust (Cornell LII)
• 26 U.S.C. § 857, Taxation of real estate investment trusts and their beneficiaries (Cornell LII)
• 26 U.S.C. § 11, Tax imposed on corporations (Cornell LII)
• 26 U.S.C. § 199A, Qualified business income (Cornell LII)
• 26 U.S.C. § 1031, Exchange of real property held for productive use or investment (Cornell LII)
• 26 CFR § 1.856-1, Qualification as real estate investment trust (Cornell LII)
• IRS, Instructions for Form 1120-REIT
• 26 U.S.C. § 4981, Excise tax on undistributed income of real estate investment trusts (Cornell LII)
• 26 CFR § 1.199A-3, Qualified business income, qualified REIT dividends and qualified PTP income (Cornell LII)
• Public Law 119-21 (One Big Beautiful Bill Act), section 70439 (congress.gov)
• IRS, Instructions for Form 1099-DIV
• IRS, Revenue Procedure 2025-32 (2026 inflation adjustments)
• SEC Office of Investor Education and Advocacy, Investor Bulletin: Real Estate Investment Trusts (REITs) (2011)
• Investor.gov, Investor Bulletin: Publicly Traded REITs (2016)
• Investor.gov, Investor Bulletin: Non-traded REITs (2015)
• Investor.gov, Real Estate Investment Trusts (REITs)
• FINRA, Real Estate Investment Trusts: Alternatives to Ownership (2022)