What is a REIT?

REIT stands for Real Estate Investment Trust. A REIT is a company that owns and usually manages income-producing real estate property such as apartments, offices and industrial space. Along with meeting additional criteria, to qualify as a REIT the company must:

• pay at least 90% of its taxable income to its shareholders every year.
• have at least 100 shareholders.
• invest at least 75% of its total assets in real estate.
• derive at least 75% of its income from rent or mortgage interest from properties in its portfolio.

Congress established REITs in 1960 to provide small investors with the opportunity to invest in large, income-producing properties. The stocks of most REITs are freely available on major stock exchanges. They present investors with an efficient method of investing in real estate; each shareholder earns a pro rata percent of the REIT's profits.

Perhaps one of the most attractive aspects of REITs is the methods in which taxes are handled. REITs are allowed to deduct dividends paid to shareholders from their taxable corporate income which can frequently remove all tax burdons. Taxes are only paid by the individual investor for the dividends received and any capital gains.

There are currently about 180 REITs that control a total of over 300 billion dollars. Many REITs focus on one particular type of property such as residential or commercial. Some handle the maintenance and management of the properties within their portfolios whereas others use contractors to perform this work.