How They Work

REITs are created by pooling funds from many investors. Funds in the trust are then invested in a variety of commercial properties. REIT managers manage the investments just as professional money managers manage mutual fund investments.

REITs can offer both capital gains and income. The capital gains are created from an increase in rental income, an increase in market value for the real estate or an increase in popularity for REITs among investors. REITs earn income from rent and from interest on loans. REITs typically pass on at least 90% of their income as dividends to shareholders; when they do, they avoid taxes on the income.