How does a Real Estate Investment Trust (REIT) typically operate?

A Real Estate Investment Trust (REIT) operates primarily by pooling investor funds to acquire and manage a diversified portfolio of real estate assets. This structure allows individuals to invest in real estate without having to purchase properties directly. By pooling resources from various investors, a REIT can afford larger properties, which can provide them with better returns due to economies of scale. Investors in a REIT receive dividends generated from the rental income and any property sales, making it a more accessible way for average investors to partake in the real estate market. This model also provides the advantage of being managed by professionals who have expertise in identifying and managing profitable real estate investments.

The other choices do not accurately reflect the operational structure of a REIT. Selling real estate directly to consumers pertains more to real estate brokerage rather than a REIT's investment model. Managing only residential properties is too restrictive, as many REITs encompass a broader range of property types, including commercial and industrial properties. Lastly, stating that a REIT invests solely in commercial real estate is also inaccurate, as many REITs include a mixture of residential, commercial, and specialized properties within their portfolios.