Are REITs halal?

A REIT, or real estate investment trust, is a company that owns real estate and pays most of its income to shareholders. Most REITs trade on the stock market, which makes them an easy way to own a slice of apartments, offices or warehouses. For Muslim investors, the question is whether that slice is halal.

Why most public REITs don't pass

They borrow. Most public REITs finance their properties partly with interest-bearing debt, often a lot of it. Owning shares means owning part of a business that pays riba.

Some earn interest. Mortgage REITs don't own buildings at all. They lend money against property, or buy mortgages, and earn interest. Those are clearly out.

What they own matters too. Some REITs own properties whose main business isn't halal, like casinos or hotels built around alcohol.

Some Shariah-screened funds hold only REITs that pass limits on debt and non-halal income. That narrows the list a lot, but it doesn't solve the next problem.

Public markets add volatility

A public REIT is priced every second by the stock market. Its share price moves with interest rates, market fear and what other investors are doing, not just with the value of its buildings. In a market sell-off, a REIT can drop sharply even when its properties and rents haven't changed.

For many people, the reason to own real estate is the opposite: steady income and slow, real appreciation, without riding the stock market. Real estate tends to do that best when it's owned directly, not traded.

Owning homes directly, without debt

The other way in is to own real homes outright, without borrowing, and earn from rent. Doing that yourself means being a landlord. Investing through a private fund that owns homes without debt lets you share in many homes without managing any of them.

The trade-off is liquidity. A public REIT can be sold in seconds. A private fund owns real homes, so getting money out takes notice.

How Neeyah Fund works

Neeyah Fund owns its share of homes that families live in and are buying over time, in 24 states, with no debt. Investors earn from the rent residents pay on the fund's share and from appreciation as residents buy more of their homes, reflected in a share price we update every quarter. Distributions are paid quarterly, and investors can ask to withdraw with 3 months' notice, on a best-efforts basis.

The fund is open to accredited investors only. Learn how investing works. For the principle behind all of this, see halal finance, back to basics.