BDC vs REIT: Key Differences Explained

The main difference is the asset: business loans against property. The table compares them on definition, who uses each, legal and tax treatment, risk, liquidity and a typical example.

In one line: a BDC earns interest from companies, and a REIT earns rent from tenants.

The BDC

A BDC raises money from shareholders and borrows more. It lends to mid-sized private companies, usually at a floating rate that moves with market interest rates. The interest it collects, minus costs, goes out as dividends. This is private credit inside a regulated fund. Some BDCs also make venture debt loans to startups and take warrants, rights to buy shares later.

The law limits what a BDC holds and how much it borrows. At least 70% of its assets must be qualifying investments (15 U.S.C. 80a-54). Its assets must be at least 200% of its debt, or 150% with board or shareholder approval (15 U.S.C. 80a-60). At 150%, it can carry up to $2 of debt per $1 of equity.

The REIT

A REIT buys or finances buildings and collects rent or mortgage interest. The tax code decides what counts. At least 75% of its assets must be real estate, cash or government securities. At least 75% of its gross income must come from property sources, such as rent (26 U.S.C. 856). It must also have at least 100 owners.

Both can be listed or not. A listed BDC or REIT trades on an exchange, and its price can move away from the value of its assets. A non-traded one sells shares at its net asset value (NAV), the value of its holdings per share. You exit through buybacks it offers. Blackstone Real Estate Income Trust, a non-listed REIT, reported a Class I NAV of $14.35 per share for April 2026. It bought back about $1.2B of shares in the first quarter.

Neither is better in general. For an investor, the choice is about which income you want and which risk you accept. A BDC’s income rises and falls with interest rates and with how its borrowers do. A REIT’s income depends on rents, occupancy and property values. Holding both spreads the risk across two different markets.

Liquidity matters as much as the asset. A listed BDC or REIT can be sold on any trading day. A non-traded one can cap or pause buybacks. In the third quarter of 2026, holders of Blackstone Private Credit Fund asked it to buy back about 10% of its shares. The fund bought 5%, pro rata.

For an employee of a private company, a BDC may be your employer’s lender. Its loan is repaid before any shareholder, including you as an option holder. A REIT may be your employer’s landlord. Neither changes the value of your shares directly. Both are worth knowing about if you hold private company stock.

Both avoid most corporate tax the same way. A BDC usually elects to be a RIC and must pay out at least 90% of its taxable income (26 U.S.C. 852). A REIT must pay out at least 90% of its REIT taxable income, leaving out net capital gain (26 U.S.C. 857). Each then deducts the dividends it pays and is taxed only on what it keeps.

The difference is on your side. Individuals can deduct 20% of qualified REIT dividends (26 U.S.C. 199A). Capital gain dividends do not count. A 2025 law removed the deduction’s planned end date after 2025. A BDC’s dividends from interest income get no such deduction.

• REIT dividend of $1,000$200 deductible, so tax is figured on $800, subject to the section’s overall limits
• BDC dividend of $1,000 from interestNo deduction, so tax is figured on $1,000

Capital gain dividends work alike for both. A BDC’s are taxed as long-term gains. The same treatment applies to a REIT’s. Your own rate depends on your income and your state.

Business Development Company

For

Income from loans to private companies, usually at floating rates. Limits on holdings and debt set by law. Public reports with each loan’s value.

Against

Borrowers can default. It can borrow up to $2 per $1 of equity with approval. Dividends from interest get no special tax deduction.

Verdict: a BDC suits an investor who wants income tied to business lending and accepts credit risk. Choose a listed one if you may need to sell quickly.

REIT

For

Income from rent on physical property. Individuals can deduct 20% of qualified REIT dividends. Many listed choices across property types.

Against

Tenants and property values can fall together. The tax rules set no borrowing limit. Non-traded REITs can cap buybacks.

Verdict: a REIT suits an investor who wants income tied to property and values the dividend deduction. Check how much it borrows and whether it is listed.

If you are choosing, start with the income source, then the exit and the tax. For more on BDC wrappers, see BDC vs private credit and BDC vs interval fund. For the loans most BDCs make, see direct lending.

Common Mistakes

• Treating both as bondsBoth are shares. Their prices and dividends can fall.
• Ignoring the listingA non-traded BDC or REIT can cap buybacks. You may get out only part of what you ask for.
• Assuming the same taxQualified REIT dividends get a 20% deduction. A BDC’s interest dividends do not.
• Reading the payout as profitBoth must pay out at least 90% of taxable income. A high payout says little about future returns.

Business development company (BDC)

A closed-end fund that elects BDC status and keeps at least 70% of its assets in qualifying investments, mainly US private companies.

Real estate investment trust (REIT)

A company that owns or finances property and meets the tax code’s tests on assets, income, ownership and payouts.

Regulated investment company (RIC)

The tax status most BDCs elect. It avoids corporate tax on income paid out, if at least 90% is distributed.

Qualified REIT dividend

An ordinary REIT dividend, other than a capital gain dividend, that counts toward the 20% deduction.

Capital gain dividend

A payout the fund labels as coming from long-term gains, taxed to you as a long-term gain.

Net asset value (NAV)

The value of a fund’s holdings minus its debts, per share.

Asset coverage

Assets divided by debt. A 200% floor means assets must be at least twice the debt.

Floating rate

An interest rate that moves with a market benchmark.

Private credit

Lending to companies by funds that are not banks.

Rules and filings were last checked on November 6, 2026. Tax and securities rules are US federal law and change over time. Company examples come from their own SEC filings.