REITs

A REIT (Real Estate Investment Trust) is a specialised type of corporation that invests solely in real estate. Today there are over 200 publicly-traded REITS, and many more privately owned. Their total assets amount to over $500 billion.

REITs fall into two main categories - equity REITS, which directly own and manage real estate, and mortgage REITs, which invest in real-estate backed mortgages. REITs handle all sorts of real estate, from shopping malls and business offices, through to apartments and residential.

The founding provisions for REITs mandated that they pay no corporate income tax, as long as over 90% of income is paid out as a dividend to the shareowners. As a result, REITs provide a reliable and significant income stream, and on the back of a strong real estate market, good long term capital growth.

The assets of a REIT are easy to identify, and relatively easy to value, so there's not much downside to a REIT investment. There's also a low correlation between REIT values and the mainstream equity market, which makes them a good diversification element in any portfolio.