Hawaii Pre-Licensing National Practice Exam

A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate for a profit. This definition captures the core purpose and function of a REIT. By pooling capital from many investors, REITs allow individuals to invest in large-scale, income-producing real estate without needing to buy the properties directly.

Typically, a REIT generates income from leasing space and collecting rents on the properties it owns. It can also profit from selling properties when their values increase. Furthermore, REITs are required by law to return a significant portion of their taxable income to shareholders in the form of dividends, making them an attractive investment option for income-seeking investors.

The other options are not accurate representations of what a REIT is. Mortgages are loans secured by real estate; government regulations pertain to housing laws and policies, not investment structures; and property insurance protects against losses related to property but does not encapsulate the function or purpose of a REIT. Understanding the role of REITs is essential for investors looking to diversify their portfolios with real estate assets while benefiting from the liquidity of publicly traded stocks.