What are the three types of REITs?

There are three primary types of Real Estate Investment Trusts (REITs): Equity REITs, Mortgage REITs (mREITs), and Hybrid REITs.

Understanding REIT Types

REITs allow individuals to invest in large-scale income-producing real estate. They are companies that own, operate, or finance income-producing real estate. Just like other corporations, REITs can be publicly traded on major exchanges, offering liquidity to investors. The different types of REITs focus on distinct areas of real estate investment and management.

Detailed Breakdown of REIT Types

Each type of REIT approaches real estate investment with a unique strategy, catering to different financial goals and risk appetites.

Equity REITs

• Primary Function: Equity REITs are the most common type. They directly own and manage income-producing real estate.
• Revenue Generation: Their income is primarily generated from the rent collected on their properties. This can include a wide range of property types such as apartment complexes, shopping centers, office buildings, hotels, data centers, and industrial warehouses.
• Investment Focus: Investors in Equity REITs are essentially investing in the physical real estate assets and the income they produce.

Mortgage REITs (mREITs)

• Primary Function: Unlike Equity REITs, Mortgage REITs (often called mREITs) do not own physical real estate. Instead, they lend money to real estate owners and operators.
• Revenue Generation: They earn income primarily from the interest on the mortgages and loans they provide. This can be done directly through mortgage origination or indirectly by acquiring mortgage-backed securities (MBS).
• Investment Focus: mREITs are more sensitive to interest rate fluctuations and credit risk, as their business revolves around debt financing within the real estate sector.

Hybrid REITs

• Primary Function: Hybrid REITs combine the strategies of both Equity REITs and Mortgage REITs.
• Revenue Generation: They generate income from both owning and managing physical real estate assets (like Equity REITs) and from lending money or investing in mortgage-backed securities (like Mortgage REITs).
• Investment Focus: This dual approach aims to diversify their income streams and potentially offer a balanced exposure to both property ownership and real estate debt.

Key Differences at a Glance

The table below summarizes the core focus and income generation methods for each type of REIT: