What is a REIT?

Real Estate Investment Trusts are a collection of properties such as apartments, office buildings and shopping malls that are bundled together and sold as a security.  Their income is derived from rents on those properties.  One of their defining characteristics is the requirement to distribute 90% of their income to investors.  Doing so allows them to reduce corporate income taxes by passing the taxation through to investors.  It is this characteristic that makes REITs better suited for tax-deferred accounts.  REITs greatly reduce the monetary barrier to invest in real estate. They also create liquidity and when sold through a mutual fund diversify your real estate investment holdings.