A real estate investment trust, or REIT, is a company that owns and, in some cases, operates income producing real estate such as offices, hotels, healthcare facilities, apartments, shopping centers, etc. In order to qualify to be a REIT under the United States Internal Revenue Code, a company generally must distribute annually at least 90% of its taxable income to its shareholders. REITs generally pay little or no corporate income taxes because they are able to deduct dividends they pay from their taxable earnings.
The United States Congress created REITs in 1960 to make investments in large scale, income producing real estate accessible to smaller investors. Investors in REITs may benefit from greater diversification through investing in a portfolio of properties, rather than a single building, and by having their investment managed by experienced real estate professionals.
REITs are total return investments and they typically provide high dividends plus the potential for moderate, long term capital appreciation. Generally, long term total returns which can be realized by ownership of REIT stocks are likely to be somewhat less than the returns of higher risk high growth stocks and somewhat more than the returns of lower risk bonds.