Real estate investment trusts, better known as "REITs," are organizations that combine the capital of many investors to acquire or finance all kinds of real estate, such as offices, hotels, shopping centers, or apartments. A REIT is a little like a mutual fund. Its portfolio is professionally managed and diversified, holding many properties. REITs typically trade on major stock exchanges.
REITs are unique in many ways. For starters, corporations or trusts that qualify as REITs generally don't pay federal corporate income tax and are often exempt from state income tax, as well. They're required to invest at least 75% of their assets in real estate and pay out 95% of their income as dividends. In good years, REIT dividends can run quite high, topping 10%.
The popularity of REITs has increased in recent years, as people have discovered this way to invest in real estate without actually buying any.
You can learn more about REITs in Fooldom in this article and this one. Also, check out NAREIT.org, REITnet.com, and Investing in REITs by Ralph L. Block. You may even run across Mr. Block on our Real Estate and REITs discussion board.
If you're interested in REITs because of their dividends, check out our Motley Fool Income Investor newsletter, which delivers several promising high-yield investments each month.