Definition 2.
REITs are sort of like mutual funds, except they invest in real estate (or mortgages) and pay out almost everything they earn (less the usual management fees) to shareholders. REITs have enjoyed a resurgence of popularity in recent years, and they are increasingly important players in the commercial real estate market. There are REITs nowadays that specialize in apartment buildings, shopping centers, office structures, nursing homes, various regions of the country, and any or all of the above. Some use more leverage than others, which adds risk but can boost returns. REITs have performed well in the past few years, and well-managed REITs offer an efficient way to invest in real estate and diversify risk. Although many REITs have experienced strong capital appreciation, REITs are invariably dividend-paying stocks, which is part of their appeal but also part of the problem with them: the dividends paid by REITs are fully taxable as regular income. Thus, for high-income taxpayers, especially in high-tax states, REITs make more sense in a retirement account.
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