I may update this page from time to time, but here goes…
REITs (“Real Estate Investment Trusts”) fall under certain provisions in the Internal Revenue Code which were created by Congress in 1960. REITs own and operate real estate, and are required to pay out nearly all of the cash earnings to the shareholders. REITs have to earn most of their income from rents and operating profits, and not from trading (sales of properties), development, or construction. If a REIT does all of this, then the REIT becomes a tax-advantaged conduit.
The principle advantage to a REIT is that it allows you to share in a fairly high income coupled with capital gains. REITs are often considered to be an alternative for investors to corporate bonds, but with an equity kicker.
Most REITs now-a-days are concentrated in one real estate sub-type (hotels, offices, apartments, industrial, and retail are just some of the biggies) but are geographically diversified.
Now, here’s the catch — not all REITs are created equal. Some are better managed than others, and some are in cyclically better industries. See “Why ACCRE” for more detail.