Real Estate Investment Trust (REIT)

I really didn’t want to define this here, but the next question on the list (“What is Return of Capital”) really requires at least a rudimentary explanation of a REIT. I beg you, before you invest in a REIT, seek professional advice, and if they can’t give you good reasons to not invest in a REIT, then seek another professional! REITs can and are risky.

As a basic definition, a real estate investment trust is a private or public corporation (or trust) that enjoys a special status under the U.S. tax code that allows it to pay no corporate income tax so long as its activities meet statutory tests that restrict its business to certain commercial real estate activities. Most states honor this federal treatment and do not require REITs to pay state income tax. By law, REITs must pay out 95% of their taxable income.

More information on REITs:

• Glossary of REIT terms
• National Association of Real Estate Investment Trusts Homepage
• The Motley Fool’s opinion of REITs, and the REIT’s response