Owning major commercial real estate isn't just for wealthy tycoons - anyone can invest in real estate through real estate investment trusts, or REITs. REITs are companies that own, and usually also operate, income-producing real estate.

Individuals invest in publicly traded REITs the same way they buy and sell other securities. The REITs use that money to manage their properties, and then 90 percent or more of the taxable income is distributed to investors in the form of dividends. Also like stocks, investors can choose to purchase preferred or common shares.

Benefits and Drawbacks
Some of the possible benefits and drawbacks for investors include:

Benefit: Individuals who otherwise would not have the means to invest in real estate have the ability to do so with REITs.

Drawback: REITs are risky, just like any other investment. Investors in the current market are finding REITs to be less appealing because real estate in general is losing value.

Benefit: Investors avoid double taxation of income. With most securities, the corporation is taxed on their income, and then investors are also taxed on the income their dividends provide. But with REITs, the corporations are not taxed for the income they pass on to investors, so the money is only taxed once.

Drawback: Dividends paid by REITs are not qualified dividends, which means they are taxed at the individual investor's ordinary income tax rate. Essentially, while it's a benefit that REIT dividends are not double-taxed, the drawback is that this allows REITs to pass on tax repercussions to investors.

Benefit: REITs can potentially provide long-term capital gain distributions, which are currently taxed at a lower, more favorable tax rate.

Drawback: As of December of last year, REITs may distribute dividends in the form of equity rather than cash. One REIT announced in January that it would pay only 10% of its quarterly dividend in cash, and its share value dropped 8% in response.

Benefit: REITs are relatively liquid compared to other real estate investments. Rather than having to sell a property (which can be tough in times like these), investors only need to sell their shares to liquefy their investment.

Drawback: REITs still do own physical property, and property taxes can take up as much as 25% of total operating expenses.

Researching REITs
Because REITs are traded like stocks, investors can find information about them using many of the same tools on www.scottrade.com that they would use to investigate other investment possibilities.

Search by Symbol
Type the symbol of a particular REIT into any of Scottrade's search bars.

Search What's Available
To find a list of REITs and more information about each one, simply:

1. Log in to your account.
2. Click on the Quotes & Research tab.
3. Choose Sectors & Industries from the left-hand navigation bar under Markets.
4. Click on Services.
5. Click on Real Estate Operations.
6. Choose the REIT you would like to investigate.

From Our Expert
Brad McCaffrey in Scottrade's Tax Reporting Department had a few words of wisdom for long-term investors interested in REITs:

• Understand REITs from a tax perspective before investing in one. The rules can be very complex, and it's to your advantage to understand the tax implications of your investment.
• Research what types of properties a REIT owns to help you make a selection that you think will be profitable. REITs run the gamut with everything from shopping malls to golf courses to office complexes, and you have the ability to put your money into specific types of properties.

If you need help navigating Scottrade's research tools or you'd like more information about REITs and taxes, contact your local branch manager.