Short for Real Estate Investment Trust, a REIT is an organization that owns—and usually operates—income-producing real estate. It can include commercial and residential properties. A REIT can deduct dividends paid to its owners and avoid incurring all or part of its U.S. federal income tax liabilities. REITs are required to distribute all of its net annual income to its shareholders.
REITs were first introduced in the U.S. to provide all investors an opportunity to invest in large portfolios of income-producing real estate through the purchase of liquid securities. A REIT is in many ways like a mutual fund for real estate with investors obtaining the benefit of a diversified portfolio under professional management.