Many investors looking for high income turn to Real Estate Investment Trusts (REITs) as an alternative to bonds.<p>REITs are a special form of security that trades like a stock on major markets, yet gives the investor the advantage of participating in large-scale commercial real estate projects.</p><p>Congress created REITs in 1960 so average investors could participate in the growth of the commercial real estate market without committing large sums of money in illiquid investments.</p><h3>REITs Payout</h3>REITs must pass 90 percent of their taxable income through to shareholders. In exchange, they pay no corporate income tax.<p>REITs invest in and, in most cases, actively manage large commercial real estate projects. These range from apartments to shopping centers to office complexes to hospitals and a variety of other commercial projects.</p><p>Most REITs specialize in a certain type of investment, such as office buildings or car dealerships.</p><h3>Investor Benefits</h3>Investors benefit several ways from REITs:<ul><li> Income from rents is passed through to shareholders </li><li> As the real estate appreciates in value, the REIT becomes more valuable and its share price may rise </li><li> REITs can offer predictable income streams because of long-term lease agreements with tenants </li><li> Because REITs trade like stocks, you can get into and out of them with ease, unlike limited real estate partnerships or other forms of real estate ownership </li></ul>Investments in large commercial real estate projects are outside the reach of most investors except through vehicles such as REITs.<h3>Risks of REITs</h3>As with any investment, there are risks associated with REITs and investors need to approach them with these in mind.<p>Most REITs focus on particular types of commercial development, such as apartments or office buildings. This concentration leaves them vulnerable to a downturn in this particular sector of real estate.</p><p>Investors should also examine where the REIT\u0092s projects are located. A high concentration of development in one community or geographic region may leave it vulnerable to a downturn in that area\u0092s economy.</p><p>Your best bet is to invest in more than one REIT and choose absolutely different real estate sectors. Also, make sure the REITs are in different geographic locations.</p><h3>Conclusion</h3>REITs are worth a look as part of your portfolio if you need current income. Compare the return to investment grade bonds with the understanding that they are riskier and should pay a premium. For most investors, REITs should be no more than 20 \u0096 25 percent of your fixed-income portfolio.