What is the downside of a reit?

Written by Editorial Team | Last Updated: August 2026

Real Estate Investment Trusts carry unique investment risks, primarily because their dividend distributions are generally taxed as ordinary income rather than qualified dividend rates, creating a heavier tax burden for investors. REIT share prices are exceptionally sensitive to interest rate fluctuations, often falling when market rates rise as income-seeking investors shift capital toward fixed-income bonds. Additionally, because REITs are mandated to distribute at least 90 percent of their taxable income to shareholders, they retain less capital for internal growth, and non-traded REITs suffer from severe illiquidity and high upfront management fees.

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