Real estate investment trusts offer access to the real estate market without many of the drawbacks normally associated with real estate investments. In general, real estate has proven attractive for a variety of reasons, including income, appreciation opportunities, and tax benefits. Additionally, real estate has exhibited less price volatility than stock and bond markets, especially during the 1980s. However, there can be drawbacks when it comes to real estate investing, including the lack of liquidity, the large sums of money normally required, management responsibilities, and the specialized expertise necessary to manage and buy properties.

Real estate investment trusts, or REITs, are similar to mutual funds in form and function. REITs pools investors' funds for investment in real estate properties and/or mortgages. REITs generate income in the form of rents from real property or interest from mortgages. Virtually all of the income of a REIT is passed through to investor-shareholders. In addition, when a property is sold, any capital gains realized are passed through to investor-shareholders. REITs also enjoy the same income tax benefits that mutual funds do: income earned by a REIT can be passed through to investors without an additional layer of taxation at the REIT level.

REITs are popular for many reasons:

• REITs are not "tax shelters" and are not expected to be affected by tax reform efforts to curb shelters.
  
  
• REITs are more like mutual funds than tax-sheltered limited partnerships, offering daily pricing, liquidity, diversification and professional management.