A Real Estate Investment Trust (REIT) is a security which trades like stocks or bonds on various exchanges and which constitutes an interest in real estate. REITs can either represent a “direct” investment in the form of an Equity REIT, in which the interest holders have equity ownership in the property and thus collect dividends from rent collected on the property, or an “indirect” investment through a Mortgage REIT in which mortgages are held (either generated as an initial loan or purchased from a prior mortgage holder) and income is generated from the interest collected. Hybrid REITs, which engage in both these types, can also be created. Their exemption from paying corporate income taxes, and requirement to disburse 90% of their would-be-taxable income in the form of dividends, make them an attractive investment vehicle.
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